Canopy Growth Corp Q1 Preview: Waiting for Profitability

Canopy Growth Corporation (TSX:WEED), one of the Canadian marijuana stocks, will report Q1/20 financial results on August 14, 2019, after markets close

SmallCapPower | August 13, 2019: Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), one of the Canadian cannabis stocks and Canada’s largest cannabis cultivator by market cap, will report Q1/20 financial results on Wednesday,  August 14, 2019, after markets close. Analysts are expecting Canopy Growth to report revenue of $111.2M, an EBITDA loss of $106.3M, and a net income loss of $166.4M.

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Route to profitability still a few quarters away. While revenues are expected to increase modestly by 5%, Canopy Growth is still six quarters away from profitability on an EBITDA basis. For Q1/20, Canopy is expecting to harvest 34,000 kg of cannabis as its production facilities begin to come online. This is more than double the 14,400 kg harvested last quarter. Additionally, Canopy Growth continues to invest in extraction and manufacturing capabilities, which is expected to improve margins. International investments and/or partnerships should still be a priority for the Company, as many countries, in particular the European Union (EU), begin legalizing medical and recreational cannabis.

Focus on creating synergy with existing assets. With Canopy Growth Corp’s largest shareholder, Constellation Brands (NYSE:STZ), having to write-down its investment in Canopy by US$828M on its financial results last quarter, it comes as no surprises that CEO Bruce Linton was ousted. The size of Canopy Growth’s cash-burn was far greater than Constellation expected and while Bruce Linton helped created the Company, the new CEO will focus on integration of the Company’s assets. In a note from Jefferies, CFO Mike Lee mentioned that the Company is expected to bring U.S. hemp assets online, which should contribute to Canopy’s top-line. As well, he mentioned the need for a global enterprise resource planning (ERP) system and standard operating procedures (SOPs) to help streamline operations to drive margin expansion. Mike Lee is also expecting to bring monthly budgeting and a move to U.S. GAAP, which creates a cleaner income statement without adjustments for fair value of biological assets, and segmented revenues reporting.

Figure 1: Construction at Canopy’s Bottling Plant

Source: Ottawa Citizen

Key takeaways. Canopy Growth Corp’s financial results could provide a glimpse into how the cannabis sector is expected to perform in the Fall. Investors should look for guidance on what the Company plans to do with its large cash reserve, as Constellation Brands (NYSE:STZ) is likely going to put a moratorium on new acquisitions for the time being, in addition to any information on a new CEO, who is supposed to be appointed by the end of the year. Also, investors can look for an update on Legalization 2.0 and any derivative products that Canopy may be launching in December when edibles and derivatives become legal for sale. Construction crews have been putting the final touches on Canopy Growth’s bottling plant in Smith Falls, Ontario and the Company has stated that it plans to introduce cannabis-infused beverages.

Shares of Canopy Growth ended Monday’s trading session 0.2% higher at C$43.49. Canopy Growth stock trades at a market cap of C$15.0 billion.

  • Market Cap: $15.0B
  • YTD Return: 18.7%
  • Q1/20 Revenues Estimate: $111.2M (12 estimates)
  • Q1/20 EBITDA Loss Estimate: $106.3M (9 estimates)
  • Earnings Date: Wednesday, August 14, 2019, after markets close

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