Canopy Growth Q1 Financial Results: Key Takeaways

Canopy Growth Corporation (TSX:WEED), one of the Canadian marijuana stocks, reported Q1/20 financials results recently

SmallCapPower | August 21, 2019: Canopy Growth Corporation (TSX:WEED) (NYSE:CGC), one of the Canadian cannabis stocks and Canada’s largest cannabis cultivator by market cap, reported Q1/20 financials results on Wednesday, August 14, 2019, after markets closed. The financials were highlighted by revenue of $90.5M, down 4% quarter-over-quarter and below the consensus estimate of $111.2M. Adjusted EBITDA loss came in at $92.0M, ahead of estimates of $106.3M.

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Figure 1: Summary of Canopy’s Financial Results

Source: Ubika, Company Reports

Net revenue down 4% QoQ and Canadian recreational revenue down 15% QoQ. Q1/20 revenue was $90.5M, down ~3.5M from Q4/19, Canadian recreational revenue was $49.5M, down $8.5M from Q4/19. However, kilogram equivalents sold were up 13% to 10,549 kg (was 9,326 kg in Q4/19). The decrease in revenue can be attributed to a lower average recreational selling price/gram, which fell 13% to $6.35/gram. Recreational sales were negatively impacted by more selection in the recreational market as more Canadian cultivators come online and a shift in product mix from 50/50 dried flower and oils to a mix heavier weighted to dried flower.

Gross margins decline to 14.6% from 15.9% in Q4/19, down 130 bps. During the Company’s earnings call, CFO Mike Lee mentioned that the lower gross margin was due primarily to $16.2M of operating expenses for facilities not yet cultivating or processing cannabis or facilities that has underutilized capacity.

Ready for Legalization 2.0 with innovative products. Canopy Growth is ramping up a large-scale extraction facility in Aldergrove, British Columbia, which is expected to be online by Q3/20. Canopy is also finishing up with construction at its bottling plant in Smith Falls, Ontario, and plans to sell vape pens and cannabis-infused beverages beginning in December 2019. During Q1/20, Canopy Growth harvested 40,960 kg of cannabis, an increase of 183% QoQ, beating guidance of 34,000 kgs, implying a production run-rate of 160,000 kg/yr. With a strong inventory position, Canopy should be ready for legalization of edibles and extracts expected in December 2019.

Key Takeaways. Currently, eight Canadian cultivators have reported CYQ2/19 results. Canopy Growth and Organigram (TSXV:OGI) have reported sequential declines in revenues. Revenues (less excise taxes for Canopy fell by 4%, compared with 8% for Organigram). For reference, Aleafia (TSX:ALEF), Aphria (TSX:APHA), Cronos Group (TSX:CRON), The Green Organic Dutchman (TSX:TGOD), and Tilray (NASDAQ:TLRY) posted sequential revenue growth of 153%, 67%, 58%, 20%, and 95%, respectively. Of note, Sundial Growers (NASDAQ:SNDL) posted $19.3M in revenue for Q2/19, which constitutes sequential revenue growth of 11.9x, albeit from a lower initial revenue of $1.5M in Q1/19. Aurora Cannabis (TSX:ACB) and WeedMD (TSXV:WMD) have provided revenue guidance of $105M and $8M, respectively, which would imply sequential revenue growth of ~60% and ~140%. Based on Aurora’s guidance, it has overtaken Canopy Growth as Canada’s market share leader. During the conference call, CFO Mike Lee mentioned that Canopy could still be 3-5 years away from profitability. However, the Company still has C$3.2B in cash and cash equivalents on its balance sheet and is likely to remain a dominate player in the cannabis industry.

Shares of Canopy Growth ended Monday’s trading session 4.3% lower at C$35.66. Canopy Growth stock trades at a market cap of C$12.4 Billion.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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