The 3 key points of the Canopy Growth earnings call that investors should know – The Motley Fool

Last week, Cover growth (NYSE: CGC), a leading Canadian cannabis company, released its third quarter results for fiscal year 2019.

Net income reached C $ 83 million, up 282% over the same period last year, thanks to the opening of the Canadian market for recreational marijuana in the mid-1980s. -October. Sales in this new market amounted to approximately CAN $ 59 million or 71% of total net revenues. Sales to medical patients, mainly in Canada, but also in international markets, particularly in Germany, generated $ 16.5 million, or 20% of net revenues; and sales of equipment, merchandise and clinic services generated $ 7.5 million Canadian, or 9% of net revenues. Oils, by product type, accounted for 33% of product sales, up 23% in the same quarter last year, with dried flowers accounting for the remainder. This shift in product mix is ​​positive as oils generate higher gross margins.

The profit situation was not as good as Canopy is investing heavily in growth initiatives, thanks in large part to the $ 4 billion it received last fall when the liquor giant Constellation Beverages increased its interest in Canopy to 38%. Canopy net income jumped 581% to $ 74.9 million or $ 0.22 per basic share. However, the positive net result is solely due to changes in the fair value of the Company's financial assets and financial liabilities. Canopy recorded an operating loss of C $ 157.2 million and a fully diluted loss per share of $ 0.38.

The results publications tell only part of the story. Here are three elements of Canopy Growth's third quarter tax call that you should know. (Transcription via Seeking Alpha.)

The production facility of cannabis-infused beverages is expected to be completed by May 1

Remarks by Bruce Linton, Founder and Co-CEO:

We have a building that has a little over 150,000 square feet that is being built right now … The building should be finished on May 1st, which means we can then start putting everything the equipment inside so can then start making beverages, which will use the science we created for four years to incorporate the Tweed brand extensions and many more [of brands] who are behind the curtain [not being revealed yet] I think … consumers will love it.

Cannabis-based beverages, as well as food products, are not legal yet in Canada, but there is general expectation that they will get the regulatory green light this year. It seems that Canopy Growth is ready to start extracting these drinks as soon as the law allows. These beverages are expected to have higher gross margins than Canopy-based products that Canopy is now legally allowed to sell – flowers and dry oils – and should therefore help to increase the company's overall gross margin.

Hemp CBD Products Targeted for Commercial Availability in the US by Q4 2019

The following quote is from Linton's remarks to an analyst who asked if management was still convinced that Canopy would have cannabidiol (CBD) products derived from hemp commercially available in the United States by the fourth quarter of this year, while Linton thought that would be the case. when he spoke at a stock market analyst event in December. (CBD, which can be extracted from marijuana and hemp, is a non-psychoactive chemical that has been associated with a host of medicinal benefits.)

I think we are always on a track … to have products in the [U.S.] markets where they are allowed. So maybe the state of New York will be a great market. Maybe California will be tougher and more regulatory. But we are on the right track to acquire the building, have third-party producers, have the transformation [operations], and if it's Q4 [2019], Q1 [2020] … [is] a function of a few things have to go well.

For information, Jan. 14, Canopy Growth announced that it had received a license from the State of New York to process and produce hemp products. This bill on the US cannabis market was made possible by the US Farm Bill, which came into effect on January 1, 2019. This law "removed industrial hemp from the federal government's list of controlled substances, which made it legal to growing and growing all over the country.Treat and open a potentially huge market for CBD products derived from hemp, "as I wrote earlier this month.

CFO transition

According to CFO Tim Saunders' remarks:

I made the decision to leave the position of Chief Financial Officer at Canopy later this calendar year … I really believe that the time has come to entrust the reins to a new financial officer to enable him to define and strengthen its financial capabilities over the next three years. five years as the country prepares for its next phase of growth.

Leaving a CFO can sometimes be a bad sign, but there does not seem to be anything disturbing here. Saunders seems to be leaving his position in good conditions, since he would remain in a strategic advisor role. He said management expects his successor to be "appointed in the coming months". It is quite common for the CFO of a company to change to the stage where Canopy Growth has entered, as revenue growth is just beginning to explode.

In short, 2019 promises to be another exciting year for Canopy, with the company starting in the US this year and planning to launch new higher margin products starting this year.