[ad_1]
What a wild time to be in the market. With the legalization of cannabis for recreational purposes in Canada, its continued acceptance on the world stage and even the United States becoming more tolerant of the plant and its derivatives through recent legislation that has essentially legalized Industrial hemp, the weather is fascinating to be investing and be involved in the cannabis space in particular. This is even more true after the announcement of news Canopy Growth Corp. (CGC), the undisputed leader of the sector, has posted very interesting financial results for the third quarter of its 2019 fiscal year. According to what management has had to demonstrate, it is clear that not only is the company the market leader, will probably remain in the foreseeable future, a situation that could, over time, create real value for shareholders.
A disclosure
Unless otherwise indicated (and only then on a case-by-case basis), all references to "$" or dollars will be references to Canadian dollars.
Growth is explosive … but there are reservations
It is rare to see a multi-billion dollar company in which we can say that growth is really explosive. Canopy is one of those cases. During its third quarter, which was the first quarter (but not the full quarter) when cannabis was legal in Canada for recreational purposes, the company's revenues increased by 282% on a net basis from 21 , $ 7 million in the third quarter of its 2018 fiscal year to the $ 83 million the company generated in the third quarter of its 2019 fiscal year. On a gross basis, sales even reached $ 97.7 million, but the Management is required to pay excise taxes on what it sells. The total quantity of cannabis shipped increased to 10,102 kg during the quarter.
This increase in the company's revenues took the form of leisure sales. During the quarter, the company sold 8,287 kg (kilograms) of cannabis for recreational purposes. This was nothing of the same time a year ago. According to management, 33% of the company 's revenue came from tied sales in one way or another to oils. This represented an increase of only 23% in 2018. The company continues to focus on recreational spaces by producing and selling oils, capsules, oral cannabis sprays and pre-rolled joints. In particular, oils and softgels have important uses in the medical field.
Canopy had interesting results that I did not expect. When I think "recreational", I think more about business-to-consumer sales, but what management has revealed is that of the 8,287 kg shipped (which accounted for 82% of the company's volume for quarter), 7,381 kg fell in inter-company sales. While this may seem insignificant to some, the fact is that business-to-business sales are of a low-margin nature compared to alternative sales.
The good news of this, though, is that it still leaves a lot of benefits for Canopy. According to management, during the quarter the company had only opened 10 Tweed stores owned by the company, plus an authorized Tweed store, and had only 4 Tokyo Smoke sites resulting from the HIKU acquisition during the quarter. second trimester. Although management has not indicated a timetable for this in its publication of the results or the resulting teleconference, it indicated that it was planning to open another 20 of each brand in a close to come up. Assuming that they approach the situation appropriately, this should translate into a very strong rise in sales in the coming months. Given this rival Green growth brands (OTCQB: GGBXF) said that between March and the end of this year that it will open 108 new locations, I can not imagine that Canopy can not open these 40 stores by the end of 2019 at the latest.
Another big development for Canopy during the quarter is pricing. Although most of its sales were low-margin and recreational cannabis was selling at $ 6.96 per gram (without being able to compare the previous year), selling prices actually went up year-over-year. his other categories, the case with rival Aurora Cannabis (ACB). According to management, the average selling price of medical cannabis in Canada's domestic market was $ 9.77 per gram, compared to $ 8.21 per gram a year earlier. International medical prices increased from $ 12.61 per gram in the third quarter of 2018 to $ 13.28 per gram in the third quarter of the current fiscal year. This type of movement is encouraging and will likely continue as management strengthens its position on intellectual property and further expands into the cannabis market through consumables and other high-end offerings.
The final final development I saw involved cash on hand. In the third quarter, the company closed its $ 5 billion investment Constellation Brands (STZ). It's great, but with significant investments, I wondered how much of this cash would remain in the company's balance sheet. Well, at the end of the quarter, Canopy had a sizeable balance of $ 4.915 billion, up from $ 429 million a quarter ago. This suggests that Canopy is still very likely to have track years. The management of this capital with this capital is uncertain at the present time, but we know that after a commitment of 100 to 150 million dollars to invest in the growing industrial hemp market in New York Earlier this year, the company's CEO said that the business would continue to invest $ 500 million in total by expanding its industrial hemp business between two and three other states in the near future.
Everything was not great anyway
Overall, I congratulate Canopy's management team because I believe that not only has the company had a decisive quarter, but management is making good decisions about how to invest the capital available to it. currently. However, a black spot for society was on the medical front. During the quarter, while average selling prices were up, activity shipped only 1,815 kg, down from 2,330 kg the year before. On the international front, shipments have increased considerably, but in Canada, the company has experienced difficulties.
Part of this seems to be due to cannabis cannibalization for recreational purposes, but another factor includes the Canadian excise tax (which management said the company had decided to absorb for its customers). In the long term, management believes this is a temporary weak point, with the real benefit of the medical sector (especially in the international arena) being a major asset, as countries that legalize cannabis generally do so first on a medical basis. It is for this reason and because of rising international sales prices that I am not too worried at the moment, but investors should keep this weakness in mind today and watch the following quarters for see how the expectations of management will materialize.
To take away
Just about every measure, Canopy has a great quarter that should appeal to investors. The company has achieved remarkable growth in sales, enjoyed a healthy growth in leisure activities, and provided strong evidence of strong pricing power. The medical side of medicine has weakened somewhat, but based on management's own guidelines, the entire medical world is optimistic in the long run. All of these developments taken together, especially when considering the future growth of the planned retail trade for society, make me optimistic about the company's design. At present, I have little doubt that, if current trends persist, Canopy will remain ahead of the pack in its space for the foreseeable future.
A community of investors in the oil and gas sectors, eager for E & P space: Crude Value Insights is an exclusive community of investors with a strong taste for oil and gas companies. Our primary focus is on cash flows and the value and growth prospects that generate the greatest potential for investors. You have access to a standard account of more than 50 stocks, in-depth cash flow analysis of E & P businesses and live chat where members can share their knowledge and experiences. Sign up now and your first two weeks are free!
Disclosure: I / we have / we have no position in the actions mentioned, and we do not intend to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
[ad_2]
Source link