Stocks Growth I Pot Stocks I Canopy Growth earnings show decline in recreational pot sales from launch of legal weed in Canada
Max A. Cherney
Canopy Growth Corp. CGC, +2.20% WEED, +1.44% reported fiscal fourth-quarter net losses of C$323.4 million, or 98 cents a share, from a loss of C$54.4 million in the year-ago quarter. Much of that loss — more than C$130 million — was on paper, as Canopy had to account for the growth of its stock price in the first three months of the calendar year because of rules regarding the company’s convertible debt. Still, the company claimed an operational loss of C$174.5 million.
Revenue, net of excise taxes, rose to C$94.1 million from C$22.8 million in the year-ago period, and were up sequentially from $83 million in the third quarter. According to FactSet, analysts on average modeled losses of C$95.2 million ($71.1 million), or 25 cents a share. Net of excise taxes, analysts expected Canopy Growth to bank C$90.6 million in fourth-quarter revenue.
While overall revenue gained from the fiscal third quarter, when marijuana was officially legalized in Canada, recreational sales did not. Canopy said it took in C$68.9 million in the quarter from sales of recreational pot, down from C$71.6 million the quarter before, when legal sales began two weeks into the quarter.
In its announcement, the company stated that it was still ramping production of cannabis to meet demand, with harvest size doubling in its fiscal fourth quarter — the first calendar quarter — and expected to double again in the current quarter. Canopy claimed a gain of more than $77 million in biological assets, or marijuana that was produced in the quarter but not sold, which boosts the bottom line.
Canopy announced results just minutes before after-hours trading closed in the U.S., and shares closed the extended session up 0.7%. The U.S.-listed stock ended the regular session up 2.2% at $43.71, which gave the company a market capitalization of $15.1 billion in U.S. dollars. Shares have gained 62.7% so far this year, as the S&P 500 index SPX, +0.95% has increased 17.8%.
In April, Canopy Growth said that it planned to pay Acreage Holdings Inc. shareholders $300 million for the right to acquire Acreage in the future for $3.4 billion in stock. Shareholders from both companies approved the transaction Wednesday. Canopy has said it plans to license several of its brands to Acreage for the American market.
Also read: Canopy Growth’s quiet co-CEO on the pot company’s ambitions in the U.S. and more
Part of the reason Canopy Growth was able to make such a substantial investment in the U.S. — at a time when American multistate cannabis companies are unable to easily access cash — is Constellation Brands Inc.’s STZ, +0.77% $4 billion investment in the company.
“If they didn’t have the cash then it would be unlikely they could do such a deal as it would be very difficult to raise capital in the debt markets for a right to buy when that rights not even certain anytime soon,” Jefferies analysts Owen Bennett wrote in a note to clients when the deal was announced.
For more: In ‘the marijuana ghetto’ at Davos, Canopy Growth found its American pot partner
Canopy Growth has been touting its investments in its U.S. hemp and cannabidiol, or CBD, operations since the farm bill passed last year. On Wednesday the company said that it has hemp or CBD operations in seven states with a full capacity of 4,000 acres. Currently, it is planing high-CBD hemp plants and industrialized hemp plants suitable for textiles, proteins and bioplastics. It’s not clear when the U.S. hemp operations will contribute to revenue, but it’s likely the company could easily transform such investments into marijuana production facilities if the U.S.
In the past three months, Canopy Growth’s U.S.-traded stock has fallen 7.3% as the S&P 500 index rose 3.6%.