eResearch | On August 14, 2019, Canopy Growth Corporation (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1) reported FQ1/2020 earnings for the three months ended June 30, 2019, the first earnings report after the Company’s board terminated Bruce Linton, the previous CEO of the Company.
Canopy is expanding and diversifying into all areas of the cannabis industry including products and geography. As of August 14, 2019, the Company had 26 retail locations, 111 issued patents and over 270 patent applications, 14 brands including the recently acquired Storz & Bickel, a German vaporizer product development company, and regulatory approvals to export cannabis to 14 countries.
Unfortunately, in FQ1/2020, Constellation Brands, a minority equity holder of the Company, extinguished C$1.1 billion warrants, a non-cash expense, which attributed to Canopy’s reported loss of nearly C$1.3 billion. The Company also associated other large expenses to its investments in production and processing facilities, which now boasts approximately 5.2 million square feet of infrastructure with additional beverage and alternative cannabis production facilities under development.
Canopy Earnings FQ1/2020
- Gross revenue after excise taxes was C$90.4 million down from C$94.1 million quarter-over-quarter and lower than analyst expectations of C$110 million.
- Excluding the warrant expense, net loss of C$104.8 million compared with C$91 million year-over-year.
- B2B recreational cannabis sales was largest revenue stream at 48% of revenue.
- Gross margin at 15% compared to 43% year-over-year, mainly attributed to unrealized loss on changes in fair value of biological assets.
- Sold 10,549kg of cannabis compared with 9,326kg quarter-over-quarter, average price per kg dropped to $7.56 from $8.94.
- Harvested 184% more cannabis at 40,960kg quarter-over-quarter.
- Assets include C$1.8 billion in cash and C$393 million in inventory.
- Goodwill increased to C$1.9 billion compared with C$1.5 billion quarter-over-quarter due to C$400 million added this quarter from a transaction to reserve rights to acquire Acreage Holdings.
- In May 2019, acquired C3, Europe’s largest cannabinoid-based pharmaceutical company, for US$342 million.
Canopy mentioned in the quarter’s MD&A that its aggressive investment phase is coming to an end, and that the Company will reflect a path of profitability as it continues to grow. In preparation for alternative cannabis products becoming legal this fall, Canopy has been constructing production and extraction facilities for products such as cannabis-infused beverages.
The cannabis industry has been criticized constantly for not making nearly enough revenue and not being able to scale operations to reach a level of expected profitability that matches the market’s valuations. On August 13, 2019, Tilray, one of Canopy’s competitors reported a net loss of C$35.1 million compared to C$12.8 million year-over-year, creating a trend of cash burning amongst cannabis companies.
Investors are now watching established cannabis companies to find opportunities for growth in higher margin products such as oils, edibles, and pre-rolled dried cannabis. Canopy is starting to realize these higher margin revenue streams as it reported that 16% of its total recreational cannabis revenue came from pre-rolled cannabis products in FQ1/2020.
Mark Zekulin, interim CEO of Canopy stated “Fiscal 2020 is going to be another exciting time for the cannabis industry as we close in on the launch of new product formats”.
On August 15, 2019, the morning after Canopy released FQ1/2020 earnings, the stock price dropped more than 12% as investors focused on the significant C$1.3 billion net loss on the Company’s books.
Canopy is buildings its foundation in becoming a dominant leader within the emerging global cannabis industry as the Company continues to invest in acquiring intellectual property, developing brands, and building international reach.
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Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1)
- Headquartered in Ontario, Canada, Canopy Growth Corp. is the world’s largest cannabis company, based on market capitalization.
- Canopy was the first company to export cannabis to Germany, the first to make a partnership with a global beverage company, and the first to have an agreement to acquire a U.S.-based cannabis company.
- Canopy is currently trading at C$36.57 per share with a C$12.6 billion market capitalization.
Tilray Inc. (NASDAQ: TLRY; LSE: 0Z6Y; DB: 2HQ.F)
- Headquartered in Ontario, Canada, Tilray is a pharmaceutical and cannabis production company incorporated in the U.S. with primary operations in Canada.
- In July 2018, Tilray listed as a public company on the NASDAQ as the first cannabis company to trade secondary shares on a major U.S. stock exchange.
- Tilray is currently trading at US$35.12 per share with a market capitalization of US$3.4 billion.
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