Canopy Growth Stock Tanks after Q1 Earnings

Canopy Growth (WEED)(CGC) reported its earnings after the market closed on August 14, and the stock plunged as a result. What went wrong?

Adam Jones - Author

Aug. 14 2019, Published 6:02 p.m. ET

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Canopy Growth (WEED)(CGC) reported its earnings after the market closed on August 14, and the stock plunged as a result. The company reported net revenue of 90.5 million Canadian dollars.

Let’s compare this result to the previous quarter, which also had a full three months of recreational cannabis sales. In Q4, the company had net revenue of 226 million. Sequentially, the company’s revenue fell 59%—which raises some concerns.

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Moreover, the company also reported adjusted EBITDA of -92 million. EBITDA is a pure measure of operating performance for a company. Canopy Growth’s negative number for the latest quarter shows that the company’s cost structure just isn’t profitable. According to Canopy, its losses resulted from expansion costs in the US and globally.

In its just-reported Q1, Canopy Growth managed to sell a total of 10,549 kilograms of product, compared to 9,362 in Q4. This increase comes as positive news, indicating that the company was able to expand products sale during the quarter. But let’s break this number down. The company sold about 7,673 kilograms of dry recreational cannabis. In addition, Canopy Growth sold 1,387 kilograms in soft gel format. It also sold 807 kilograms of dried medical cannabis and 682 kilograms in soft gel and oil format.

Main takeaways from Canopy Growth’s Q1

Besides how much the company sold, we were also watching for an update on the company’s margins. In Q1, Canopy Growth delivered a gross margin of 15%, which declined slightly from 16% in Q4.

The company provided guidance on the US market. It stated that it’s developing CBD products along with marketing plans to sell in the US by the end of the 2020 fiscal year. These products will include vape products, edibles, beverages, cosmetics, creams, and soft gels.

On the management shakeup front, the company seems to be looking for a replacement of its current CEO, Mark Zekulin. In today’s press release, Canopy Growth stated, “A search has commenced to identify Mr. Zekulin’s replacement as the Company’s Chief Executive Officer.”

How the market reacted

Canopy Growth stock tanked after earnings as the company failed to meet expectations. Analysts expected it to report 122 million Canadian dollars in revenue for the quarter. As a result, Canopy Growth stock was trading almost 11% lower today.

Cannabis company peer Tilray (TLRY) also reported disappointing earnings, and its stock was trading 1.9% lower after hours today. Meanwhile, Aurora Cannabis (ACB) was trading about 2% lower in the after-hours session.


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