uploads///How Canopy Growth Plans to Become Profitable

How Canopy Growth Plans to Become Profitable


Aug. 19 2019, Published 11:11 a.m. ET

Last week (ended August 16) was rough for Canopy Growth (WEED)(CGC) stock. It fell about 14% after the company’s fiscal 2020 first-quarter earnings report. Canopy’s mounting losses are concerning investors, who may be wondering if and how the company can turn to profitability.

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Canopy’s plans

Canopy has been focusing on developing value-added products that can command wider margins. As a result, it could make itself more sustainable and its Canadian business more profitable. Its value-added products include vape devices, vape oil, and pre-rolled joints. The vaping industry is a major focus for cannabis companies, as vaping cannabis may become an alternative to vaping tobacco. To learn more, read Vaping Cannabis or Smoking Tobacco: Burning Questions.

Why value-added products?

Dried-flower cannabis, the most basic format, is also one of the most widely available and used formats. As cannabis is a controlled substance in many parts of the world, not much research has been conducted on its effects on human health.

Conducting research on producing derivatives would result in the cannabis plant being used more efficiently. Therefore, Canopy says it is researching and developing intellectual property related to such products. Currently, the company has 110 patents and another 270 patent applications.

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Canopy reveals developments

For the first time, Canopy gave a glimpse at the intellectual property it was developing in its earnings call. It said it is addressing issues with vaping devices, such as limited battery life, safety, and design functionality. The company believes its vaping products will be different from what’s traditionally on the market. The products are set to be available by December.

Canopy also plans to introduce infused beverages, which it believes will have a market reach beyond current cannabis consumers. The company is also making chocolate bars with cannabis.

When could the company become profitable?

While Canopy has been talking about bringing value-added products to market, their speed of profitability depends on how soon Canada legalizes the products. Consequently, Canopy’s path to profitability could be still years away. The company estimates it is about three to five years from profitability.

In contrast, Aphria (APHA) reported a net profit in its recent quarter. Meanwhile, Aurora Cannabis (ACB) has announced it remains on track to achieve positive EBITDA.



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