All this week and parts of last week, cannabis companies have been releasing their third quarter results for 2019. Previously, Rich explored MediPharm Labs (TSX:LABS) (OTCQX:MEDIF), which posted great results, and Tilray (NASDAQ:TLRY), which posted less-than-stellar results.
Today, Rich breaks down the quarterly results for the granddaddy of them all, Canopy Growth Corporation (TSX:WEED) (NYSE:CGC). Because of the way its fiscal year is structured, Canopy is actually reporting its Q2 results for 2020.
Canopy’s report is… not encouraging. In fact, Rich forecasts that “things will get worse before they get better.” So hold onto your lunchboxes, we’re going in.
Canopy Losses Double Analyst Expectations
For the three months ending September 30, Canopy Growth reported $374.6 million in net losses. Tragically, that’s about double what Wall Street was expecting.
The figure amounts to $1.08 in losses per share for Q2 2020, compared to a loss of $330.6 million or $1.52 per share a year ago. Net revenue came in at a disappointing $76.6 million. Year-over-year, that’s an increase from $23.3 million, but it’s a decrease of 7% from $90.5 million in the company’s first quarter.
Adjusted EBITDA came out to negative $155.7 million.
According to estimates from Bloomberg, analysts were projecting a net loss of $155 million—or $0.39 per share—on revenue of $102.3 million. Adjusted EBITDA was expected to be negative $96.1 million. This means that net losses were more than double the forecast for the quarter.
Why Canopy Growth Isn’t Growing
CEO Mark Zekulin said in the report:
“The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market.”
For the quarter, Canopy sold 10,913 kilograms of cannabis, which is up 3% from the previous quarter. The 7% drop in Canadian sales is reportedly due to a decline in wholesale deals.
In addition, company-owned recreational same-store sales grew by 17%, and global medical organic growth was 23%. Zekulin added:
“Even though revenue is muted during the quarter due to the restructuring charge, actual cannabis shipments grew quarter-over-quarter, which is a great accomplishment in light of the inventory reset that’s occurring at the provinces.”
Unfortunately, sliding pot prices across the industry mean that a gram of cannabis isn’t what it used to be. So, even as sales grow, revenue is in decline.
Stock Tumbles, Company Provides Update
As a result of the disappointing Q2 results, Canopy Growth’s stock fell 16% on the NYSE and 15% on the TSX.
Despite considerable growth in value in the first few months of 2019, WEED and CGC stock are down nearly 50% from the start of the year.
In a post-earnings conference call, representatives of Canopy’s management warned that the company likely won’t achieve previous forecasts of $250 million in revenue by the end of the fiscal year.
Still, the company’s recent partnership with Drake offers some big potential for 2020. It also has $2.7 billion in cash and cash equivalents as well as marketable securities available for sale.
Things aren’t exactly picture-perfect for the cannabis giant, but they’re not all bad either. What do you think? Will Canopy Growth turn things around soon, or is it headed for disaster?
Featured image: Canva