Canopy Growth Stock Falls after Weak Q2 Earnings


Nov. 14 2019, Published 9:47 a.m. ET

Today, Canopy Growth (CGC) (WEED) reported its earnings for the second quarter of fiscal 2020, which ended on September 30. For the quarter, the company reported net revenues of 78.6 million Canadian dollars. The revenues fell short of analysts’ estimate of 107.12 million Canadian dollars. During the quarter, the company incurred 32.7 million Canadian dollars of portfolio restructuring expenses, which lowered its revenues. The company’s adjusted EBITDA was -155.7 million Canadian dollars—lower than analysts’ expectation of -93.28 million Canadian dollars. Weak revenues and higher operating losses caused Canopy Growth’s stock price to fall. The company was trading 7.0% lower in pre-market trading hours today.

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Canopy’s Growth’s revenue growth

During the quarter, Canopy Growth reported gross revenues of 118.3 million Canadian dollars—an increase of 6.2% from 111.4 million Canadian dollars in the first quarter. The acquisition of C3 and ThisWorks drove the company’s revenues. However, removing portfolio restructuring expenses and excise costs, Canopy Growth’s net revenues were 78.6 million Canadian dollars—a fall of 15.4% from 90.5 million Canadian dollars in the first quarter.

Compared to the first quarter, Canopy Growth’s B2C recreational business and the medical business in Canada grew 23.6% and 7.6%, respectively. The increase in dry cannabis sales drove the company’s B2C recreational business sales. Expanded brand and product offerings and more registered patients drove the company’s medical business in Canada. However, Canopy Growth’s B2B recreational business in Canada fell 15.4%. The company’s management said that the lower revenues were due to declining purchases in the provinces.

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Canopy Growth’s international medical business delivered a strong performance. The revenues grew 72.4% from the first quarter to 18.1 million Canadian dollars. The growth in organic and inorganic sales drove the segment’s revenues. The company acquired C3 in May, which contributed 14.0 million Canadian dollars to the second-quarter revenues.

Lower adjusted EBITDA

Canopy Growth’s adjusted EBITDA fell from -92.0 million Canadian dollars in the first quarter to -155.7 million Canadian dollars. The decline in the gross profit margin and higher operating expenses lowered the company’s adjusted EBITDA. Canopy Growth’s gross margin fell from 19% in the last quarter to -13%. Portfolio restructuring costs lowered the company’s gross profits by 40.4 million Canadian dollars, which caused the gross margin to fall. Canopy Growth’s operating expenses increased 15% due to higher sales and marketing, R&D, and G&A expenses.

The company reported a net loss of 374.6 million Canadian dollars—higher than analysts’ expectation of a loss of 144.0 million Canadian dollars. The net loss is an improvement from the last quarter. In the first quarter, the company incurred a loss of 1.28 billion Canadian dollars.

YTD stock performance

YTD (year-to-date), Canopy Growth has lost 33.2% as of Wednesday. The weak first-quarter performance, analysts’ downgrades, and weakness in the cannabis sector dragged the stock down. Canopy Growth’s second-quarter performance might lower its stock price.

Meanwhile, Aurora Cannabis (ACB), Aphria (APHA), and Cronos Group (CRON) have fallen 30.8%, 24.6%, and 33.2% YTD, respectively. Aurora Cannabis will report its first-quarter earnings today after the market closes. For analysts’ estimates, read Why ACB’s Upcoming Earnings Aren’t Exciting Analysts. Also, visit 420 Investor Daily for more cannabis-related news.


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