The earnings call
Canopy Growth (WEED) (CGC) held its fiscal 2019 fourth-quarter earnings call on June 21. During the call, it provided critical updates about its near-term performance and growth initiatives. The company’s margins took a hit during its most recent quarter. Let’s look at what its management had to say.
Canopy Growth’s gross margin during the quarter contracted as it continued to incur capital expenses. The capital expenses went toward building scale to take the company’s capacity to 4.8 million square feet from 600,000 square feet. Canopy Growth’s gross margin came in at 16%, which the company believes would have been ~50% had the expenses it incurred toward future growth not existed. The company’s fixed-asset investment in fiscal 2019 amounted to a total of $644 million. As the company realizes the full potential of these costs, it expects its gross margin to expand in excess of 40% by the end of next year.
The company expects its margins to pick up as the above-mentioned capital expenses start to create high-margin, value-added products. Some of the products the company will have the capacity to build include cannabis-infused chocolates, vapes, and infused beverages with ~2–10 milligrams of cannabis derivative.
Read How Profitable Was Canopy Growth in Q4 and Fiscal 2019? to learn more.
With the legalization of hemp in the US, Canopy Growth has made a push for a presence in the US hemp market. On its earnings call, the company stated that it would begin refitting existing buildings for manufacturing hemp-based cannabidiol products by the end of the next fiscal year.
On the Acreage Holdings (ACRGF) deal, Canopy Growth believes that the company aims to have a dominant presence in ~20 states in which Acreage has operations.