The Canadian Investor - CPI Accelerates and More Losses for Cannabis Stocks

Episode Date: June 27, 2024

On this episode of the Canadian Investor Podcast we break down the latest Consumer Price Index (CPI) data and its ramifications for the Bank of Canada's (BOC) upcoming monetary policy decisions. With the annual inflation rate now at 2.9% and core inflation seeing its first rise in months, we examine the challenges the BOC faces in balancing rate adjustments against a backdrop of a weak economy and high consumer debt.  We'll also explore the varying performance of major Canadian grocery chains, contrasting Empire's cautious outlook with Loblaw's robust growth, and discuss strategic moves in the retail sector. Additionally, we go over the recent earnings release of two of the major Canadian cannabis producers in Canopy and Aurora. We finish the episode by talking about Winnebago’s decline in sales and what it means for the RV industry. Tickers of Stocks & ETF discussed: ACB.TO, WEED.TO, EMP-A.TO, WGO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kant and we're doing our earnings and news episode as we always do on Thursdays. But before we get started, Dan, how are you feeling? Are you a bit hungover from last night, which unfortunately the Oilers

couldn't make that comeback which would have been I think the first one since the Maple Leafs in like the 1960s or something like that 40s yeah I don't know from what I heard like it wasn't televised that much because it was during the the second world war so this would have been like the first ever live televised comeback but uh yeah, it was pretty rough. Not feeling too good today, but not feeling too bad. I mean, I think they'll be back. Yeah. And they did a lot better than Montreal when they went to the cup. I think Montreal lost in five, if I remember correctly. And I think Montreal's too was kind of a mirage where,

like you said, the Oilers, I think have a pretty good foundation, especially if they can keep Dreisaitl and McDavid for years to come. But it was fun to watch. I was definitely cheering. On a side note, I couldn't figure out how to watch it. I tried to subscribe to Rogers. Their site was the subscription site for Sportsnet. The subscription site was down then I tried TV

the French broadcast I kept getting an error with them so the only way I was able to finally get it was to through Amazon Prime so Prime Video you can add sports net as a channel so that's the the way I was able to do it but if not like at some point i was just like okay it's not meant to be i just won't watch it i'll just kind of keep up with the score yeah the the sports net app is really buggy goes down all the time like their uh sports net now subscription or whatever i've had that happen all the time it's kind of annoying it never happened to me thank god game seven that would have been I would have been freaking out. But, yeah.

I mean, it doesn't feel as bad because they were down 0-3. So, I mean, if it was a close series, I would definitely be crippled right now. But I don't feel too bad. I guess it's another year, and I think it's been, what, 31 years now since Montreal last won the Cup and the last Canadian team. So I guess we'll have to wait at least another year for that. Yeah. Next year. Okay.

They'll get it. Next year. Exactly. So I guess enough about hockey. I know I think most of our listeners probably at least watch part of the game. So they know the outcome at this point. So we'll go ahead and talk about CPI print that came up for Canada just this morning before we started recording. So do you want to go over that? And then I'll give my thoughts and a few

notes as well that I took from the print. Yeah, so it was a pretty surprising CPI release. I mean, one that will no doubt put the Bank of Canada in a pretty tricky situation next month. The markets believe this too. So before this CPI print, they projected that there was, it was over 70% chance of a cut in July. They've downgraded that to just 46%. So the annual inflation rate came in at 2.9%, which is actually a 20 basis point increase from a month ago. Core inflation also had its first month over month increase in nearly five months and month over month inflation came in at 0.6%, which is way too high. Most estimates for inflation were around 2.6% year over year and most month over month estimates were coming in at around 0.3%. So the month-over-month came in way higher than expected.

Rentals continue to soar. I mean, not only just rentals, but just shelter costs. So national rent prices increased by 8.9% year-over-year, and mortgage costs increased by 22.3%. So CPI increased by more than the Bank canada's annualized target in pretty much every segment outside of some discretionary spending like you know like household household items furnished like clothing footwear things like that and as i mentioned it does put the bank of canada in a pretty tricky position i mean canadian consumers desperately need rates to come down it's pretty clear our economy is weak. Everybody is struggling,

rising costs of living. But ultimately, the main goal for the Bank of Canada, their main priority is going to be protecting the Canadian financial system, protecting the Canadian dollar, not Canadians who may have spent a bit too much money on a home or carry too much debt. So their priority is going to lie with that. And this inflation print definitely, you know, doesn't paint a good picture for the future. I think bond yields are up quite a bit this morning. I think they were at least this morning. I'm not sure where they're settling right now. But I mean, I guess the one thing that I'll say is it's one print it's not really you know it's not like this has happened for two or three consecutive months there will be another print

prior to the bank of canada's rate decision in july and i'd be very curious like if things you know they kind of go back to a normalized level if they still continue to cut you know a 25 basis point cut but if we have two consecutive cpi prints like this it's continue to cut you know a 25 basis point cut but if we have two consecutive cpi prints like this it's hard to imagine you know they don't move into a situation where it's uh more of a hold than a than a continued decline yeah yeah exactly and i mean i think we'll have to see what happens and i think that was a good point that you made in terms of what happens with the next print. I think it'll be mid-July and then the BOC decision, if I remember correctly, will be at the end of July, July 24th or around there. I think it's the 24th, yeah.

Yeah. So they'll definitely have another print, as you said, to be working off on. A couple of things for me, obviously, that I did notice in terms of core inflation was definitely something that picked up quite a bit. And there's three measures of core inflation. And I will explain it to people because we've talked about it in the past and different. You'll hear people mention like core inflation quite a bit as well, but they don't really they don't really explain what it is. So I think it's always good for people to understand a bit better what it is. So the first one is CPI common, which was down 2.4% from 2.6%. So this was the only one of the three that actually declined,

the other two increased. So this measures, it assesses common price changes across categories in the CPI basket. That's the best definition I could find. CPI medium, on the other hand, was up to 2.8% from 2.6% last month. Of all the items, they use the median or the 50th percentile of price increases. So the best way to explain this to people, let me take a really simple example. Of course, this is just simplified just to make it easier to understand. So if you had, say, 10 items that you looked at for inflation, the first one of that item, so the lowest inflation one was 1% inflation and the 10th one, the highest inflation one, was 15% inflation. And then the fifth one, which is the midpoint, was 3% inflation. Then the CPI median in this example would be 3%.

CPI aside, however, mediums can be really useful when looking at stats, especially if you compare the median to the average. It can really help you figure out if the average is skewed one way or another. And I think that's a big, big, big thing that I am critical for macro stats in general, they have a tendency to actually skew a little bit more towards the average, which the average oftentimes just does not paint a full picture of what they're trying to describe. You know, the best example is when you hear like headline data, whether it's this or other types of headline macroeconomic data, or you hear that households are still spending a lot. Well, oftentimes, what we're seeing right

now is that skewed right towards higher income earners. And that's where the median would actually go a long way to put that into context. And the last one here is CPI trim. That one was up to 2.9% from 2.8%. So CPI trim excludes the most volatile components on both ends. So when people do think about core inflation, that removes the volatile elements. Typically, that's what at least the Fed, right right they'll remove that kind of food of energy for core and those tend to be a bit more volatile so if i take my previous example where the first data point was one percent and the 10 one was 15 for the trim let's say in this example you'd remove the two extreme points so the one and 15 and then you essentially would take all

the other data points to come up with the CPI trim. And I would suspect that this measure typically removes energy and food prices, like I just mentioned, for the Bank of Canada. And I think that's why they prefer to use this one compared to other data points because it's a bit less volatile. Whether that's a good thing to do or not, that's very debatable because at the end of the day, you know, people, the population in general, like, I mean, you don't really care where it's coming from, whether something is volatile or not. You just know that your cost of living is actually increasing. And whether it's energy, whether it's food, these are things that touch everyone. So I think it's a bit, i understand on one hand why they would want to kind of smooth things out by removing them but on the other hand i think you do you really want

to do that because you know it's not a true picture of what is actually what's happening well i was just gonna say like those are the two things that just hit everybody like it's unavoidable like a lot of the data that they you know highlight it might not impact some people but i mean food and energy are the two that are just no-brainers they hit everybody yeah exactly and food you know that's a big component it was up 0.9 percent month over month in stats canada mentioned that seasonal increases do happen at this time of the year, which is not wrong. I looked at the previous year and there was a bit of a gap, but it was not as big as we saw right now. So in April, so from March to April, there was a decline of 0.2% in food prices month over month.

And the increase of 0.9% is pretty substantial in terms of difference between the two months. And that's why I wanted to look at last year what happened and the gap was much narrower compared to this year. With energy being down 1.1% month over month and up 4.1% year over year, I still think this is actually one of the biggest risks to rising inflation because you can actually make the case that energy has been relatively stable over the past year. 4.1% for energy is not that high in terms of how volatile it can be. Obviously, it can go the other way as well. So this one, I mean, if energy starts picking up, I think all bets are off. Everything goes out the window because that will definitely put some pressure on headline CPI data. And I guess the last thing I've been hammering this,

but services inflation is staying very, very sticky. This one has not gone down, I think, below 4% year over year, and I think maybe even 4.5%. I didn't check like, you know, the past couple years or so. But based on memory, I know it's been relatively high, and it was up 1% month over month and 4.6% year over year. And that's actually a small acceleration compared to April on the year over year basis. So it's something to keep in mind that there are still definitely some important pockets that are remaining very sticky. And I think with the July out, well, the June print that will be out in July before the July meeting, we'll probably have, you know, we'll decide which way they go. And like you said, I think one data point of CPI, I think you have to take it with a grain of salt because it

is volatile. And I saw some headlines on BNN Bloomberg, I think when it came out, and I don't know the term they used, but it was basically like, you know, saying that inflation was fully back on type of deal, like reaccelerates or, you know, skyrockets or something like that. But I think it's just one print, right? We have to take it with a grain of salt although you know if we see that increase continuing next uh next print and then that will probably stop the bank of canada from further cuts at least in the near term yeah and the only other the only other point that i actually looked at was i was looking at the uh the food food purchase from stores and food purchase from

restaurants and the food purchase from stores has gone like down to the point where it's under a 2% annualized rate, whereas restaurants are remaining, you know, they've gone down, but they're still very sticky. I think it was like 4.7 or 4.8% year over year growth. And like restaurants, you know, they drive, you know, a decent chunk of the economy. They employ a bunch of people. And I mean, they just, I think I read a report at the end of 2023 or the start of 2024, that 52% of restaurants are losing money. So, I mean, you move forward now. It's a tough business. Oh, it's crazy tough. Especially now, like food has gone up to the point where, I mean, margins are probably razor thin there. There's higher, there's more demand for higher wages, which ultimately hits them as well.

Plus you have the fact that just Canadians just aren't eating out as much. I mean, I know I'm not. So the costs keep going up. It's tougher for them to make money. It's a pretty, that industry is being hit huge. And then you have the fact that, you know, a lot of those restaurants are probably heavily in debt from just trying to survive from the pandemic. So you have inflation rising, you know, they need rates to go down probably to get some

relief on that end. And, you know, if you get two bad prints like this, you might not get any relief, at least in the short term. Yeah. And that's where the services inflation, right? Kind of shows up because services, it's typically more wages that are earned by people and wage increases. So I'm not surprising that restaurants are seeing prices go up faster than going to the grocery store. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online

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I think we've touched enough on this point. Do you want to get started with some earnings? Which was definitely, I'll be honest, a bit of a challenge to find some earnings. Definitely in between the shoulder season, I guess, between different earnings season here. But we did find a few i think it'll still be a fun discussion yeah there's definitely not much going on right now but uh empire is pretty pretty important considering i mean considering the environment here for canadians food like just you know choices of grocery stores so it's pretty crazy how different the earnings

results are you know and the overall outlooks are from the three major grocers here in Canada, like Loblaws, you know, they're continuing to spend a huge chunk of money on their, on, you know, network expansion, improvements of current stores, all while just posting double digit earnings growth. double digit earnings growth. Whereas Empire who just reported, I think they reported either, I think it was late last week. They're struggling quite a bit and issuing, you know, a bit of a more cautious tone. So they reported earnings per share of 63 cents, which is a 10% decline from one year ago today. And same store sales increased by only 0.2%. On a full year basis, the company reported a 0.8% increase in sales and a 2.8% decline in earnings per share. The company's net earnings actually fell by 6.3%, but it's been buying back quite a bit of shares. It's repurchased 4.2% of its total shares outstanding over the course of the year. So that obviously offsets a bit of the earnings decline on a per share basis. The company has actually repurchased just under 7% of its total shares outstanding over the last

few years. I mean, the only difficulty you have here and just with buybacks in general is the vast majority of the purchases were made at relatively big premiums to where the stock price is right now. Same store sales growth came in on the year at 1.3%. So this is a decline from last year's 2.3%. Over the course of the year, the company actually closed down 38 total stores, which is a pretty large bump up from the 21 it closed in fiscal year 2023. They mentioned that it opened, relocated, or acquired 34 total stores. To me, I guess this would be a net loss of four stores, but they don't really mention what is going on in regards of how many were opened, how many were relocated, and how many were acquired.

So it doesn't really give a big picture of how they're doing on a store count basis. give a big picture of how they're doing on a store count basis. They bumped the dividend by 9.6% and they're planning around 700 million in capital expenditures in 2025. Half of this will go into new store expansion and the renovation of previous stores, while 25% will go into business development projects and improving logistics and e-commerce network. So the company had around 800 million in CapEx last year. So this is scaled back by quite a bit. Margins remain relatively stable. So really the overall weakness in results is just the slowing of revenue growth.

So results from Empire are pretty much night and day from a company like Loblaw, like I had mentioned. They're seeing 3.5% plus same store sales growth, double digit earnings growth. And as I've mentioned a few times, I think this is just due to the fact that Empire doesn't have all that big of a discount presence here in Canada, at least not compared to Loblaws. Groceries are becoming ridiculously expensive and many Canadian consumers are just heading to cheaper alternatives. I mean, I used to be pretty much exclusively shop at Sobeys and I'm not sure if I've been in there in the last year or two. It's just, you can get identical products at a place like No Frills for often,

you know, 10 to 20% less. And then we factor in the amount you can save over the long-term just by visiting, you know, a big box store like Costco, where you might pay more, but you get more. It's just overall, there's more bang for your buck there. I find it hard to imagine the popularity of places like Sobeys increasing anytime soon, just simply due to the fact that food prices may be slowing down to a more normalized level for growth, but they aren't going to be coming down at any point. I mean, if they do, I think Canada's, you know, if we start seeing deflation in terms of food prices, it's probably a bigger issue. I mean, I think the period of high food inflation we witnessed probably caused a permanent shift in the Canadian consumer as many realize, you know, just how much they can save by heading

to simpler options. I mean, when money is more, you know, when Canadians have more money, maybe they pay a little more here and it's not an issue, but when things start to get tight, maybe they head to, you know, a no frills, a superstore, a Costco, and they kind of realize like, oh man, this is, uh, this is quite a bit cheaper. And then just on a, on a return basis. So when we look at it on a 10-year basis, Loblaws has actually returned 16.4% annually, while Empire has only returned 6.19%. But for many years, these grocers produced very similar results return-wise. And it was only when food prices started to skyrocket in late 2021, early 2022, where you really saw that divergence and lob loss took off while Empire really hasn't done much since. And I just think that's an element of

the stores are just more expensive and Canadians just don't have a lot of money to spend right now. And they're going to pinch wherever they can and especially on necessities like food. now and they're gonna they're gonna pinch wherever they can and especially on necessities like food yeah yeah i think you're right and i decided to uh just pull up for empire loblaws and metro just their operating margins but also free castle margins just to see how they compare all three of them and for those on joint tcis you'll be able to see the graphics. But Empire, they're looking at a operating margin of 4.5%, also known as EBIT. Same thing for people just wondering. You can use those interchangeably. And then free cash flow margin of 4.1%. And then if you compare that with Loblaws, Loblaws, which is 6.4% of free cash flow margin and 6.1% of operating margin.

So you see Loblaws seems to be definitely doing better on both front compared to Empire. And then you have Metro, which is a little bit of a mix of both, I would say. So Metro has higher operating margins at 6.7%, but the free cash flow margin is lower at 4.9%. So I just thought it was interesting to compare all of those, but I think the clear conclusion here is that the laggard is clearly Empire over the other two. Yeah. Yeah. They just don't have a lot of cheaper alternatives. I mean, I'm pretty sure they're kind of aggressively moving towards that discount brand right now like i think they're kind of revamping a lot of stores i'm pretty sure just off the top of my head i think they sold off their safeway segment i might

be wrong on that but uh like safeway is one of the most expensive at least here it's one of the most expensive grocery stores you can go to yeah we don't have them here yeah yeah there's it's ridiculous how expensive it is it's uh up there with like a co-op or something like that but um okay i think they're either they either sold them off or the or they're rebranding a bunch of them to kind of you know get that that discount element like a no frills something like that but um yeah it's it's hard to see a turnaround unless you know we see maybe big rate cuts more you know excess capital for canadians maybe they go back to something like this but uh i don't think i ever would just because i realize how much cheaper it is to go

to like a cheaper store like a no frills like a Costco I just don't see myself ever returning there yeah and I think the last thing to mention here that I don't know if they do maybe they have a small brand that's pharmacy like a pharmacy empire but I know obviously you have Loblaws that owns Shoppers Drug Mart or Pharmaprix on the Quebec side and you also have Metro that owns Jean Coutsu or Pharmaprix on the Quebec side. And you also have Metro that owns Jean Coutsu that is a big pharmacy mostly located in the Quebec. So I would think that is probably helping the results of Metro and Loblaws compared to Empire where they don't have that.

I do know Sobeys has pharmacies like the Sobeys where I'm at doesn't have a pharmacy, but I'm pretty sure they do have pharmacies, but I've never noticed. They're not standalone, huh? They're kind of integrated, I would think. Yeah. Yeah, okay. No, I just thought I'd mention that because there were definitely a bigger portion for the other two. But no, I think that was a good overview. We'll move on to some cannabis earnings. So it's been a while, I think, since we talked about that on the podcast. I'll get started with Canopy. So this one happened about a month ago. So on May 30th,

they released it. Clearly, it wasn't the bulk of it in terms of earnings. So there was lots to talk about. So we didn't talk about it. But now it's a bit kind of a slower pace in terms of earnings. So I think it was good to revisit that. And then you'll be talking about Aurora after that. So we'll be comparing. I have a feeling it's a little bit of the same for both of them. Not great. And I do feel for shareholders of the two companies, unfortunately. Now revenues were up 6.7% to $73 million, which is the first time they had an increase in revenue in over two years. Now, for additional context, quarterly revenue peaked in 2021 at $141 million. Truth of form, Canopy highlighted the top segment increase

as the first line of their earnings release. I've been very critical of them. They were doing the same thing with BioSteel before we got, you know, they realized that there were some accounting shenanigans happening and they had to revise the actual earnings that had come out. But I wish they would just highlight, you know, like most companies do, actual total revenue as the first line not just trying to make some of the segments look better i've been very critical of them and they've been doing this for quite some time i don't know if you've noticed that on your end no i haven't paid

attention to too many cannabis stocks in in quite some time but i mean just trying to what's it lipstick on a pig i guess they say i mean just trying to make what's it? Lipstick on a pig, I guess they say. I mean, just trying to make it look better when in reality it's not all that good. Yeah. I didn't even know that. It's pretty sneaky. So they just took a particular segment, which grew 43%, just slapped it on the top. Yeah, that's the first line so the storts and bigel segment

they had 43 percent revenue increase to 22 million which is their second largest segment after the canadian cannabis sales canadian cannabis sales includes recreational and also medicinal sorts and bigel for those not aware they make herb vaporizers that are typically used for cannabis so i think you know, there's one that's fairly well known. It's called a volcano. So if people are familiar with that, it's actually them that produces that. You know, I am familiar, like I said, with the brand, but I think it's good quality. I think it was German to begin with when they bought it. But it is concerning, like I said, that they're highlighting this and it's not even the

core part of the business like they are a cannabis producer and it's kind of funny that that's not even the segment that's doing the best right now and the problem is that canadian cannabis sales only increased four percent with negative growth in the recreational cannabis space segment and then positive growth in the medicinal cannabis now they had a net loss of 92 million which was a massive improvement believe it or not over the last year in which they had a net loss of 604 million however there was a significant write-off of 1.7 billion taken off last year so of course it wouldn't have been as bad. Now for for the full year, they lost $285 million in free cash flow, but it's the smallest free cash flow burn that they've had since cannabis had been legalized in Canada. So, I guess it is kind of better than it was, I would say.

Still not great, but some improvement. Again, you have to really try hard to kind of show where there's been some improvement. And you can see free cash flow. The cash burn was massive in 2019 and 2020. They were burning every year more than a billion in free cash flow in 2019 and 2020. So you wonder why shareholders have been completely destroyed. This would have been the reason right here. And then, you know, some of one of the brighter spot, I guess, as well, is that long term debt has reduced significantly. So from June 2021 up until their latest quarter, so it went from 1.5 billion to just shy of 500 million. Definitely a big

improvement. But one of the issues with that is that it's diluted shareholders a whole lot. So they went from 39 million in shares outstanding in 2021 to more than 91 million the latest quarter. I'm fairly sure this is adjusted because I believe they had a reverse stock split. I think so. I'm 100% sure. I know Aurora did, but I feel like all cannabis companies did that at some point to not get delisted just based on the share price. I guess overall, I would say it's still not great. There's been some improvement, but I think it's a reality check for a lot of people that are looking at these companies to rip or become great businesses

once the US become legalized on the federal level, whenever that will actually happen. I think it's a really difficult business to be profitable in. I will say the same thing I've always said. I think 10, 15, 20 years down the line, we'll see one or two big players in North America. They will be profitable, but it will be razor thin margins and they'll make money on volume. That's my prediction long term. But again, I think Canada is just not big enough of a market and we're seeing it right now. I mean, I don't know how they become profitable. Maybe they will in the next few years, but sales are definitely taking a big hit as well.

Yeah, I think, like, again, I don't follow the industry very well, but I think a lot of them are moving away from recreational and more into, like, medicinal. I mean, at least Aurora is in a big way. I mean, I think they just took on, you know, a ton of debt, you know, dumping money dumping money into expanding infrastructure back when it was legalized. And as you said, March 2020, their fiscal 2020 year, they burnt almost $1.5 billion, which is eventually just going to lead to either taking on a ton of debt or diluting the hell out of shareholders, which they pretty much did both. And it's just been it's been ugly for canadian cannabis producers i can't think of a single one that's done well like i not one i mean i uh what is the other one true true leave yeah yeah i have a nice graphic for you when you go over aurora after that, I'll show how they perform compared. So Aurora, Canopy compared to the TSX Composite XIC, right?

The ETF and then SPDR for the S&P 500 since the day they were legalized in Canada. And spoiler alert, it's not good. But I'll show people. So I'll let you do Aurora first. But before that, just so people see. So I'm just showing their net income and free cash flow on an annual basis over the last 10 years. And whichever way you look at it, it's not good. It's just a whole lot of negative numbers. I'll just put it that way.

And I have a feeling that Aurora is a bit of some of the same. Yeah. It's funny. It's almost like as you're reading this, it's almost an identical quarter. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real

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and more information. So Aurora reported revenue of 67.4 million and closed the year out with revenue of 270.6 million. So this is around mid single digit growth on a year over year basis. And we look to when we look to fiscal 24 compared to 23, revenue is up around 56%. But again, the difficulty for these cannabis companies is not in growing the top line. It's in profitability. The company reported gross profits of $131 million, but operating expenses of pretty much $178 million, leading to an end net loss of around $70 million in fiscal year 24. So the company's main top line growth now comes from medical cannabis, medicinal cannabis.

top line growth now comes from medical cannabis, medicinal cannabis. Sales grew by 64% when compared to year over year, so 24 to 23, while consumer sales rose only 9.5%. Free cashflow getting a little better, but ultimately the company is still burning money at a pretty rapid pace. So trailing 12 month free cashflow sit at negative 86 million. pace. So trailing 12 month free cashflow sit at negative 86 million. And as a result of the cash burn, much like, much like canopy, the company has had to issue a crazy amount of shares over the last two years. Share counts have effectively doubled increasing by 94%. But again, this is what I looked up at Y charts. I'm not sure if they would have like offset, you know what I mean? Like adjusted for the split. So I'm not exactly sure if this is like like offset you know what i mean like adjusted for the split so i'm not exactly sure if this is like post reverse split i would say they do adjust it out and it has been

diluted this much but i'm not exactly sure judging by a lot of the comments on the mdna the company seems to be focusing primarily on the medicinal side and not the consumer side as margins are higher and demand is continuing to grow. They stated that they're prioritizing the supply of their GMP manufactured products to our high margin international business rather than the consumer business, which offsets lower margins. And apparently from what I've been reading, again, I don't know the industry that well, but GMP means good manufacturing practices. So in Canada, cannabis sold doesn't need to fit GMP.

Whereas in the international markets like Europe, it has to be GMP to be sold. So this kind of gives me the impression they're choosing to sell it internationally, the higher quality stuff where it is required to be sold rather than here in Canada, where the margins are lower and the product really isn't all that required. So the company's debt level is much like Canopy. They've come down massively, but this has, again, resulted in huge shareholder dilution. So peak debt for Aurora was 795 million in 2019. And the company now has only 57 million in long-term debt. It really seems to me like the focus on consumers isn't necessarily dead, but it's really on the back burner for Aurora. They're pushing hard into medicinal cannabis and are ultimately benefiting from changing regulations. I think particularly in Europe, they issued their fiscal Q1 25 guidance and they expect revenue growth in the high teens

on a sequential basis. So compared to this quarter. So the company believes they can achieve positive free cashflow by the end of calendar year 2024. So that should put them like, you know, in the next two quarters, they expect to be free cashflow positive. So they expect operating margins to remain relatively stable throughout the year, which ultimately, you know, should result in more EBITDA generated by the company. Again, don't follow the industry very much. So I can't speak on whether or not the, you know, the medicinal cannabis industry is what's going to cause a company to break out of a very long funk but outside of the top line growth and the debt reduction i mean everything else looks fairly ugly i mean it'll be interesting to see if they can turn it around and in terms of just you were looking at you were mentioning the returns so So share prices for Aurora are down 99.75% since their peak in 2018.

So at that time, Aurora was trading at 180X sales. It's currently trading at about 1X right now. Yeah, so I mean, that lines up with what I have. So I was looking, well, first on the shares outstanding i think it's reverse split adjusted i think because if not you'd see yeah if not you'd see a sharp decline and share outstanding right i think they did like was it like a 10 to 1 or 1 1 for 10 there you go i think so yeah one share price is so low yeah exactly then, so we're looking at this here. So for people just listening, not enjoying TCI, so you have essentially Canopy and Aurora.

Pick whichever poison you like best. It's pretty much the same. They're both down, I think, 98.5% for Canopy and 99.5% or right around there, total returns for Aurora. Whereas if you would have invested during that same period of time, and that's since the legalization. Legalization happened on October 17th, I think, 2018.

I got this from October 19th, 2018. So, you know, I don't think the two days will change much in terms of returns. And then you compare that to the XIC. So the ETF that tracks the composite, the TSX composite, that one is doing much better. So total return 67.5%. And then you compare it to the SPY, which is just the S&P 500 and 116% total return. So, and 116% total returns. So, you know, and that's obviously then you factor in the gap between the cannabis companies and your underperformance is just massive, right?

It's just, it's over, you underperform by what, 160-ish percent and 117%, it's 270%. So it's pretty crazy yeah yeah but i mean as the saying goes you don't lose if you don't sell that's correct yeah that's the worst the worst phrase in the investing world let's talk again and in 15 20 years see how it goes but no i just thought it it's interesting to look back right like brayden and i obviously um you were on the podcast and we kept hammering when we started the podcast even back in 2019 2020 like these are trading at valuations that are just kind of crazy and you remember

these companies were just like purchasing throwing a billion here another billion there and purchasing like different like grow uh companies so they're like just you know mna like crazy and just didn't make sense and now they're clearly paying for it we'll see if it turns around obviously roa said this year they should be free cash flow positive i'll uh believe it when i see it i'll just say that yeah yeah i mean it's not i think like these two have taken a particular beat down because, uh, you know, they were the major players in the space.

I I'm pretty sure from what I remember, like canopy had a larger market cap than like the entire total addressable market. And that's just one that's just of the Canadian, Canadian Tam, which like that should just tell you something i mean it was just absurd but the i looked up the global x well and even the even the tam right that was the issue is you couldn't really know what the total addressable market was because it was coming

from a black market and you know how truthful are people with their you know their marijuana habits when you know it was illegal maybe people are not fully truthful whether they use it or not and then from those people when it becomes legalized it kind of assumed that everyone would switch to the legal market and i know you know one of my friends who's a daily user i mean he's still i think buys from like this bc place which he orders online that's kind of a gray zone but i think a lot of people still use buy it from either the black market or something that's kind of you know in between legal and not legal so i think a lot of the assumption was just that everyone would switch to

the legal markets would clearly didn't happen and then the tam i of the assumption was just that everyone would switch to the legal markets, which clearly didn't happen. And then the TAM, I mean, the estimates were just all out of whack. I mean, it's just so hard to establish. Yeah. And they were like, they were out of whack. And still these companies, like single companies larger than the entire, you know, likely most bullish addressable market possible. But looked up the global x uh marijuana

etf i think it's hmj and i mean even that is down from you know it was highs of around 107 dollars in 2018 and it's down to 10 bucks so i mean only 90 roughly% roughly. It's outperforming the stocks. It's outperforming these two. These two got obliterated just because like at their peaks, like they were the most popular ones. So, yeah. Yeah. It's been ugly. Yeah, exactly.

So, now we'll finish off with Winnebago Industries. You thought it was hilarious that I decided to do that. But, you know, I think it's a fun one to look at. We talked about it on the podcast, Braden and I, a couple of years ago. And obviously, I think they had a well, they had a big boost during the pandemic because clearly with the lockdowns, people didn't have much to do. You know, having a RV was actually pretty sweet, right? You could travel, you didn't have to book a hotel, you know, all the restrictions regarding that you could just, you know, use your RV travel Canada, maybe figure out how to get into the US. I don't remember all

the restrictions back then. But regardless, even if you had to stay in Canada, we have a big country so you can go from east to west and see a lot of different things and not have to worry as much about all the restrictions. So they definitely benefit from that. And their revenues actually peaked around in 2022 at just shy of 5 billion. And then the last 12 months, they're looking at 3 billion. So it's been declining. And revenues pre-pandemic were right around $2 billion in 2018 and 2019. So I think it's interesting just to look at that. Obviously, it's been a steep decline since.

And in terms of quarters, revenue peaked in mid-2022 at $1.5 billion and have been in decline ever since. Now, the stock has not had a good year so far. It's down 25%. I can tell you one thing, it's crushing those cannabis stocks, but nonetheless, it's been struggling this year. to 786 million. Management said that market conditions remain a challenge. Clearly, demand remains inconsistent and sluggish. They expect softness to continue in Q4, but they are seeing encouraging sign for 2025 and beyond. Again, pretty vague on that. We'll have to see. And I will give my take. I do have an interesting take on this. So their backlog for motorhome RVs went from $800 million to $355 million, which is a 56% decline. Operating margins fell more than 300 basis points to 5.5%. EPS fell 43% to $0.96 per share.

Net income declined by half to $29 million. But again, they are profitable. So listen to that, Canopy and Aurora. Free cash flow fell 20% to $70 million. And on the bright side, they did return $29 million to shareholders via buybacks and dividend during the quarter. And the stock is currently yielding 2.3%. It's still a relatively small company. I didn't realize it was that small, but it's a market cap of 1.5 billion with an enterprise value of 2 billion. So I thought it would have been maybe slightly bigger than that, but it's quite small and the bullish case, I, for them, and let me know what you think, but as housing, not only in Canada, but in the US as well, becomes more and more expensive,

you can make an argument that this could present an option for some people that are just priced out of the housing market. And, you know, if you have your remote worker, doesn't matter where you work, you can get set up in that. I mean, I was looking at these things and I found like this website, it's like a company in Ottawa that sells like used NURVs. I mean, these things are pretty sweet. Like you can look and you get like these massive things used, of course, but you're, you know, these massive things used of course but you're you know you're getting like these they're literally like almost buses that you can you can kind of live with you have like the thing opens on the side and you can get some i think new ones for around 150 200 000 but if not i mean you can get

some used ones for like around 100k so clearly clearly, you know, better than buying a home more affordable. So I don't know. There could be a bullish case for them as an alternative for people who want a home. Yeah, I mean, I've been in a few like really nice RVs and they are nice. Like they're like a full-blown house. I mean, obviously, they're a little more compact, but I mean, I could see somebody realistically owning one of these over a home. I mean, I'm seeing even double-wide trailers where I'm at selling for $300,000, and they're

not as nice as an RV, probably like a 40 40 foot rv you could probably pay 200 grand for a brand new yeah it's better than better than a shoebox condo yeah exactly i mean a lot of them are really nice they don't really have any like you know you're not gonna get one well maybe you could i can't imagine you're gonna get one with like granite countertops and stuff just because they like to make them a little lightweight but uh yeah i've been in some pretty nice rvs the one thing i'll say about the popularity is probably just due to financing as well like you could probably you could have bought one of these in the pandemic and because most people even though it's kind of the wrong way to look at it they don't really look at the total

cost to own they just look at the monthly payment like they don't care how much they're paying they just look at how much they're paying per month, which I would imagine would have driven a huge surge in popularity. I didn't even know they were publicly traded. Yeah. Well, yeah, I knew. I think they have a few competitors, but I thought it was just fun to look at with a pandemic. And I think I wanted to touch on it, but I forgot. I think that's a great point, what you said in terms of the interest rates. Clearly, a lot of people will buy these on financing, so that will definitely impact the demand for it but again i mean there is probably a bullish case to be made because if you can't afford a home you're a remote worker i mean it's not a bad option like clearly i mean compared to paying like 2500 two grand a month for like a one bedroom condo

that's like probably smaller in living space than that even or pretty close to it obviously if you don't have a remote option in terms of working it's a different conversation but um you know you can make a case that for a lot of people it couldn't make sense yeah yeah you could definitely like i could probably do it i mean i i could pretty much work from everywhere i know i wouldn't but uh i mean i could see it i mean you just gotta find i guess you gotta find a place to park and get water and electricity which yeah like a lot of those places the only difficulty there is they charge like 50 70 bucks a night for full hookups so that adds a little bit of expenses but uh no it's it's definitely a viable option i mean the the first

thing when i saw this winnebago is i just thought of the winnebago man i don't know if you've ever seen those videos no oh you gotta watch him it's like uh he's like a winnebago salesman and it's all like his bloopers they're absolutely hilarious that's the first. It's like he's like a Winnebago salesman and it's all like his bloopers. They're absolutely hilarious. That's the first thing I thought of. It was like a YouTube video probably 15 years ago that went viral of this Winnebago salesman. Okay. Well, I think, you know, I'll go watch some of those videos. I think, you know, this has been long enough in terms of, you know, obviously we had to

get creative with earnings a little bit, but I think it was a fun episode nonetheless. And our next episode, because we will be taking a little bit of a week off from recording, we'll record the next one a bit in advance. when it comes out, feel free to reach out to Dan and I on Twitter at Fiat underscore iceberg for me and for Dan at Stock Trades. Can you say it for me? Stock Trades underscore CA. Underscore CA. So you can just, you know, tweet at us or send us a DM if you have some questions, because Friday, the day after, we'll be recording an episode a bit early and we'll do a bit

more of a mailbag episode because we'll be doing in advance. So if you hear this first thing Thursday morning, feel free to send us some questions. You can also go on our website and send us some questions over there. So it's in the description of this episode so you'll be able to find it there. So hope you enjoy the episode. We'll sign off on this and. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.