Canopy Growth Corp Financial Results: Why it Disappointed

Canopy Growth Corporation (TSE:WEED) (NYSE:CGC), one of the Canadian marijuana stocks, reported fourth-quarter financial results after markets closed on June 20, 2019

SmallCapPower | June 24, 2019: Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), one of the Canadian cannabis stocks and Canada’s largest cannabis cultivator by market capitalization, reported Q4/19 financial results after the markets closed on Thursday, June 20, 2019.

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Source: Company Website

The Company reported revenue (sales less excise taxes) of $94.1 million for the quarter and posted a net loss of $324.4 million, or $0.98 per share, which was three times the loss analysts expected. Canopy Growth sold 9,326 kg (kilograms and kilogram-equivalents) worth of cannabis during the quarter, compared with 10,102 kg sold in the third quarter, a decrease of 7.6%. In a call with analysts, Canopy Growth CEO Bruce Linton explained how the decrease was due to poor retail store roll outs in Alberta & Ontario and said the Company is on track to sell 34,000 kg in Q1 of fiscal 2020. Gross margins decreased to 16% from 26% in the third quarter, which was attributable primarily to $24 million in greenhouse facilities not yet cultivating or cultivating under full capacity. Canopy Growth CFO Mike Lee noted how when adjusted for the under-capacity facilities, gross margins before the biological fair value impacts was $39 million, or 41% of net revenue.

Canadian medical sales were down 27.4% sequentially to $11.6 million in Q4, from $15.9 million in the third quarter. Mike Lee said that the decrease was due primarily to supply chain issues and mentioned that the supply constraints have been resolved and the Company expects finished product inventory levels to increase into the second quarter of 2020. Cannabis inventory dollar value increased 42.1% to $203.5 million from $143.2 million. Canopy Growth is building a bottling plant across the street from its 168,000 sq. ft facility in Smith Falls, Ontario. In addition, Canopy has a chocolate factory, which it is planning to use for edibles. Mike Lee said that the inventory is expected to be used to ramp up production of edibles and beverages in preparation for mid-December, when Health Canada will begin to allow the sale of these products.

On the Company’s earnings call, management mentioned it is targeting $250 million in revenue by Q4/2020, which would be a 165% increase year-over-year from Q4/2019. Canopy’s management said the Company is expecting to see positive EBITDA from Canada within the next 18 months. Canopy Growth also mentioned that it plans to harvest 4,000 acres of hemp in the U.S. for high-grade CBD oil.

The Company has the highest revenues out of all the major cultivators and is fueling revenue growth organically and through M&A activity. However, it needs to grow its revenues substantially and become a profitable enterprise to justify its high market capitalization.

Shares of Canopy Growth Corporation ended Friday’s trading session down $4.39, or 7.6% lower, at C$53.28. Canopy Growth stock trades at a market cap of C$18.4 billion.

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