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Cannabis shares rebound after Aurora made its first profit in the December quarter

Cannabis shares were broadly broader on Tuesday as investors digested the first earnings reports of the season and received a first look at a pot banking law that the Democrats want to pass in 2019.

Aurora Cannabis Inc.

ACB, + 1.68%

ACB, + 2.21%

The stock recently traded 2% after nearly quadrupling sales and gaining market share in the second fiscal quarter. However, due to a decline in shares related to marijuana, the company also suffered large losses. Aurora has invested heavily in other companies in the industry and needs to track their performance as part of their bottom line. These adjustments accounted for approximately $ 190 million ($ 143 million) of losses and were generated after a sell-off in the sector.

The numbers reflect the first full quarter since the launch of legal cannabis sales in Canada in October, the first industrial nation to sell recreational recreational products. Aurora said C $ 21.6 million of C $ 54.2 million of total revenue came from Canada, which suffered from bottlenecks at the beginning of the new regime.

More information about Aurora can be found at: The profits of Aurora Cannabis show strong pot sales growth but a disturbing earnings trend

Supreme Cannabis Co. Inc.

FIRE, -3.59%

SPRWF, -1.39%

Equities fell 3% after the company made gains in the second quarter of the fiscal year. The company had a net loss of $ 1.55 million or 1 cent per share for the second quarter ended December 31. This value was below the value of $ 2.03 million or 1 cent per share in the same period of the previous year. Sales increased from $ 1.68 million to $ 7.72 million.

However, the company may have been over optimistic about its pre-sale cannabis investments. Supreme said that the change in fair value of biological asset growth was $ 10 million, and realized changes in the fair value of assets sold or impaired were $ 6 million. Combining C $ 6 million and C $ 4 million in production costs exceeds $ 7.72 million in revenue.

Read now: Marijuana IPOs in 2019: These companies could be the next hot-pot stocks

In accordance with International Financial Reporting Standards (IFRS), the standard used in Canada, companies must disclose the value of a biological asset at various stages of development in order to smooth revenue over time. For cannabis companies, this means that they have to post the theoretical value of the crop before the sale, says Mike Miller, finance director at private equity firm White Sheep Corp. If they are ultimately sold for less than their assigned value then they will have to adjust in the following quarter.

"The cannabis market has experienced a tremendous price fluctuation that makes it hard to appreciate the value of biological assets," he said. With the industry still in its infancy, there are no futures markets that could help with pricing, and many price estimates were based on medical cannabis prices that were higher than the prices that retail cannabis retailers could receive.

"If it were 100% accurate, the sales figures should match production costs and customization and go to zero. This will be an issue for many companies in this winning season, and until the industry matures, "he said.

Read more about: How can marijuana companies benefit without selling pot

Preview of cannabis revenue: Cannabis Profit: The decrease in pot stocks can drown Aurora and others in red ink

Also on Tuesday MedMen Enterprises Inc.

MMNFF, + 1,95%

Chief Executive Officer Adam Bierman made a statement protesting charges against former Chief Financial Officer James Parker in a lawsuit. Parker, who resigned from office in November for a halved capital increase, sues the company at Los Angeles Supreme Court for, inter alia, breach of contract and unlawful dismissal. At that time, MedMen refused to comment on the CFO exit and said the reduction in funding by almost half was due to a "significant sell-off" on the world market.

Bierman said Parker worked at MedMen for less than 18 months before resigning in November last year. Now he has filed "unfounded, unfair dismissal for his financial gain and we will vigorously defend ourselves in court," he told MarketWatch in a statement.

Parker's lawsuit is alleged to have been constructively terminated without cause, and the company must "keep a blind eye and deaf ears for inappropriate and unlawful behavior" in the company. The executive continued to claim that it was "confronted, among other things, with an environment full of racial, homophobic and misogynistic epithets and slander, drug and alcohol abuse, and personal humiliation triggered by the words and deeds of the CEO and the Company ".

Bierman said he has been married to a Latina woman for 15 years, while MedMen co-founder Andrew Modlin is an openly gay man. MedMen shares fell 5%.

According to Marijuana Moment, a website that works with activists, industry and policy makers on trends related to cannabis, Democratic leaders of the US Congressional Democrats have circulated a draft bill that would allow cannabis companies to: to invest their profits in banks.

The lack of access to banking and capital markets due to the federal ban on cannabis has hindered the development of the sector. The bill was released by the House Financial Services Committee ahead of a Wednesday scheduled meeting on the subject. Democrats envisage further legislative measures in 2019 to promote the sector, including tax fairness, medical access for military veterans and the elimination of current barriers to medical research, according to Marijuana Moment.

If you missed it: Cannabis stocks are falling across the board as Aphria rejects CBD spreads

In other areas of the industry, Canopy Growth Corp.

CGC, + 3.18%

GRASS, + 2.69%

Shares increased 3.3%, Cronos Group Inc.

CRON, + 2.83%

CRON, + 2.63%

Shares rose 3.5%, Aphria

APHA, + 8,30%

APHA, + 7.82%

Stocks were 8% higher and Tilray Inc.

TLRY, + 1.32%

had risen by 1.3%.

Hexo Corp. Stocks

HEXO, + 4.79%

HEXO, + 4.99%

increased 4.9%, Aleafia Health Inc.

ALEF, + 9,39%

ALEF, + 9,39%

was up 9%.

The ETFMG Alternative Harvest ETF

MJ, + 2.65%

rose 3% and the ETF of Horizons Marijuana Life Sciences

HMMJ, + 2.78%

had risen by 3.2%.

Additional coverage by Max Cherney

Click here to see all MarketWatch information on the cannabis sector.

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