Canopy Growth’s 4Q Earnings: Profitability Expectations

Canopy Growth’s profitability expectations

On June 20, Canopy Growth (WEED) (CGC) is expected to report sales of 91.1 million Canadian dollars and a gross income of 24.4 million Canadian dollars. While the sales are expected to increase ~9.6% sequentially, the margins are expected to compress during the same period. Canopy Growth’s gross margins are expected to fall to 26.3% from 39.7% sequentially.

The company is also scheduled to report its fiscal 2019 earnings on June 20. The fiscal 2019 gross margin is expected to be 27.6%. The fiscal 2019 gross margin will be almost half compared to 51.5% in fiscal 2018.

Negative EBITDA

Canopy Growth’s expenses towards growth and expansion are expected to be an overhang in the fourth quarter. The company is expected to report a negative EBITDA of 63.5 million Canadian dollars—compared to negative 75 million the previous quarter. For fiscal 2019, the EBITDA is expected to be negative 231.4 million—compared to a negative EBITDA of 61.8 million Canadian dollars in fiscal 2018.

Net income

Given the negative EBITDA, Canopy Growth is expected to report a net loss of 107 million Canadian dollars in the fourth quarter, which will be better than the net loss of 121 million Canadian dollars in the previous quarter. For fiscal 2019, the company is expected to report a net loss of 486 million—compared to a net loss of 70.4 million Canadian dollars in fiscal 2018.

In the near term, cannabis companies are expected to report a net loss and hopefully see improved profitability in the future. HEXO (HEXO) reported a net loss of 10 million Canadian dollars, while Aphria (APHA) reported a net loss of 49 million Canadian dollars in its quarter ending in February.