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Canada-based pot producer Canopy Growth Corp. posted a sequential decline in quarterly revenue Wednesday along with mounting losses and said it hadn’t received a material order for recreational cannabis during the quarter.
Shares of Canopy
CGC, -10.17%
WEED, -9.77%
tumbled roughly 6% in Wednesday morning trading.
Canopy’s fiscal-second quarter is an indication of the difficulties and unknown variables in the still new Canadian legal recreational market, which analysts had anticipated would add substantially to the company’s sales and profits.
Chief Executive Bruce Linton blamed provincial buyers, saying on the company’s earnings call with analysts that there “really was no revenue shipped” and that provinces effectively bought enough product to stress test their systems for acquiring and dispensing pot to consumers. After recreational cannabis was legalized in Canada on Oct. 17, the company made only limited “test” shipments of C$700,000 ($528,422).
“[In Canada], provinces are screaming “get me product!”, which means that you don’t necessarily optimize cost,” said Linton. “You try to make sure you get them products, or sometimes you have to put on a plane, sometimes you’re running a lot of overtime, but we’re finding that craziness for the first 30 days is now starting to become a predictable, more reasonable model and we can actually start and really look at how we run the business versus how we satisfy the anti-prohibition.”
Marijuana stocks to watch: Canopy Growth is the cannabis business’s $4 billion gorilla
The Smiths Falls, Ontario-based producer logged net losses of C$330.6 million, which amounts to C$1.52 a share, widening from losses of C$1.6 million, or a penny a share, in the year-ago quarter. Canopy’s losses included non-cash charges of C$115.7 million, or 52 cents a share, due to share-compensation expenses and fair value changes on financial assets, among other things.
Sales and marketing costs ballooned 167% to C$39 million and general and administrative costs shot up 159% to C$37.1 million for the quarter. Costs in both categories rose because the company was spending cash on things like creating packaging and marketing campaigns for the recreational market and on technology related to the company’s data-gathering efforts.
Beverage giant Constellation Brands Inc. has made a $4 billion investment in Canopy, in part to develop marijuana-infused drinks and other edibles. But since the deal wrapped up Nov. 1, the cash did not appear in the financial statements for the quarter.
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Revenue declined sequentially from the prior quarter to C$23.3 million from C$25.9 million and missed the FactSet average of C$60 million, based on estimates from three analysts. Three estimates is typically insufficient to construct a consensus.
Linton said the sequential decline in revenue was due to issues with its German business and issues with medical marijuana patients in Canada, who now number 84,400, a 34% increase.
“I’d attribute half of the decline to just not normal course Germany and a little bit of a pause with the medical people,” he said on the conference call.
While the company missed analyst projections for the top- and-bottom line in this quarter, Linton remained confident that models of the company’s fiscal full-year continue to be accurate.
“I think most were expecting provinces taking product in a material way and most provinces were not,” he said. “I don’t think you’re wrong about what the year could look like.”
Sales of oils represented 34% of product revenue, compared with 18% a year ago. Kilograms of cannabis harvested jumped 265% to 15,127, while kilograms sold increased 9% to 2,197 and the average selling price per gram grew 24% to C$9.87. Canopy said that its various pot products represent about 30% of the current available recreational inventory across the country.
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When asked by an analyst about ongoing bottlenecks, Linton said the company experiences a different bottleneck every day, but the early issues have been figured out.
“Internally we talk about watching Usain Bolt race, where you’re seeing Bolt would always win but he didn’t start off leading because he had to get momentum going. We feel we’re in a bit more like that mode.”
Canopy is the last of the major bellwether Canada-based marijuana companies to report this week. Aurora Cannabis Inc.
ACB, -7.61%
ACB, -6.52%
reported results Monday, Cronos Group Inc.
CRON, -4.93%
CRON, -3.56%
released earnings before the bell on Tuesday and British Columbia-based Tilray Inc.
TLRY, -9.87%
posted its quarterly financial statements after the closing bell Tuesday.
Canopy stock has run up 44% over the past three months through Tuesday, while the ETFMG Alternative Harvest ETF
MJ, -3.95%
has climbed 19.5% and the S&P 500 index
SPX, -0.25%
has slipped 3.5%.
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