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Digging Deeper into Canopy Growth’s Cost per Gram

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Canopy’s cost of production

Earlier in this series, we saw how Canopy Growth’s (WEED) average sales price per gram of cannabis (HMLSF) has increased over the last four quarters, which has been highly supportive of the company’s top line.

In addition, the company was also able to drive down its average cost of production per gram. Let’s look at this performance in more detail.

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Cost evolution

In fiscal 3Q18, which ended in December 2017, the weighted average cost per gram for Canopy Growth stood at 2.53 Canadian dollars. This cost included three parts: 0.59 Canadian dollars per gram to harvest, 0.44 Canadian dollars per gram post-harvest, and 1.5 Canadian dollars per gram for shipping and fulfillment.

Canopy Growth has plans to add 5.7 million square feet of space compared to the ~0.73 million square feet it currently has licensed. With its additional capacities coming online, its costs will likely be driven down further.

Cost breakdown

The company’s cost per gram to harvest saw a significant fall YoY (year-over-year) from 0.87 Canadian dollars per gram in 3Q17 to 0.59 Canadian in 3Q18. According to the company, this fall in the cost per gram to harvest was primarily driven by operating efficiencies from capital investments, increased facility utilization, and higher plant yields. Essentially, operating efficiencies and increased utilization point toward cost reductions through economies of scale.

Post-harvest costs include the production of soft gel capsules and cannabis oil. YoY, these costs also fell significantly from 0.53 Canadian dollars to 0.44 Canadian dollars. According to the company, post-harvest costs fell as a result of its newly commissioned custom-built oil extraction machine and its improvements in trimming, drying, and prepackaging costs.

In contrast, shipping and fulfillment costs saw a YoY rise from 1.17 Canadian dollars to 1.5 Canadian dollars. According to the company, these costs rose due to investments in delivery, packaging, and overall experience costs.

In the next article, we’ll continue our discussion with a look at Aurora Cannabis’s (ACB) (ACBFF) sales price.

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