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How Canopy Growth’s Margins Looked in 3Q18

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Canopy Growth’s margins

In the earlier parts of this series, we discussed how Canopy Growth (WEED) fared in terms of selling prices, sales volumes, and cost of production. While the company’s cost of production fell 1.9% year-over-year, its selling price rose 13% over the same period.

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Margins year-over-year

During fiscal 3Q18, Canopy Growth reported a non-GAAP (generally accepted accounting principles) gross margin of 58% of sales, which included the cash operating costs associated with the company’s subsidiaries that aren’t currently cultivating or selling cannabis. According to the company, the costs from these subsidiaries drove down the margins to 58% from 64% in 3Q17. Without the costs of the subsidiaries, the gross margins would have translated into 71% of sales during 3Q18, according to the company.

Other costs

The company stated that its sales and marketing expenses increased to 43% of sales in 3Q18 from 39% of sales in 3Q17. Similarly, the general and administrative expenses also increased to 51% of sales in 3Q18 from 41% in the corresponding quarter a year ago.

According to Canopy Growth, these investments impacted the company’s profitability. However, the company added that these long-term investments will strengthen its global leadership in 2018. As cannabis producers such as Aurora Cannabis (ACB), MedReleaf (MEDFF), and Aphria (APHQF) gear up to compete in the market, it remains to be seen how each of these producers ramp up their investments.

The company reported a net loss of 11 million Canadian dollars or a loss of 0.01 Canadian dollars per share during the quarter.

Next, we’ll discuss how Canopy Growth is preparing for recreational cannabis (MJX) legalization in Canada.

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