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Canopy Growth: Notes from Constellation Brands’ Earnings

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Notes from earnings

Constellation Brands has invested nearly $4 billion in Canopy Growth (WEED). Constellation Brands released its earnings for the third quarter of fiscal 2019 on January 9. While the market focused on Constellation Brands’ disappointing earnings, we were glued to what the company had to say about its future with Canopy Growth. In this series, we’ll discuss the cannabis industry portion of Constellation Brands’ earnings release.

Expectations

In the earnings call, Constellation Brands provided a sales target for Canopy Growth. In the next 18 months, the sales target is expected to reach about one billion Canadian dollars. One billion is substantial for a company that had revenues of 77 million Canadian dollars in 2018. Recreational cannabis legalization has become the catalyst for the company to be able to reach the target.

Analysts have a more conservative view than Constellation Brands. If we take 18 months from now until fiscal 2020, Canopy Growth will report six quarterly earnings releases. In 2020, analysts’ consensus estimate for Canopy Growth’s sales is nearly 807 million Canadian dollars. Analysts expect Canopy Growth to cross one billion Canadian dollars in 2021.

The sales growth is substantial. If Canopy Growth’s earnings meet the estimates, Constellation Brands would benefit significantly from its investment. Other cannabis stocks (HMMJ) including Aurora Cannabis (ACB), Tilray (TLRY), and Cronos Growth (CRON) are also estimated to have substantial sales growth.

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