Canopy Growth’s Q2 Earnings: Good or Bad News?

Canopy Growth (WEED) (CGC) reported its second-quarter earnings results today. The stock is already down 16.07% on the day and is trading at 20.52 Canadian dollars on the TSE. Meanwhile, it’s down 16.11% to $15.52 on the NYSE.

YTD (year-to-date), CGC is down 47.76% on the TSE and 46.33% on the NYSE. So why is the stock falling?

Canopy Growth missed analysts’ revenue estimates

In the second quarter, CGC’s net revenue rose 229% YoY (year-over-year) but fell 15% sequentially to 76.61 million Canadian dollars. Its revenue, however, was significantly lower than the consensus estimate of 108.48 million Canadian dollars, which would have implied a YoY rise of 365.04%.

In the second quarter, CGC’s gross revenue rose 6% YoY to 118.30 million Canadian dollars. Excluding incremental revenue impact from acquisitions, the company reported a flat revenue performance. It sold 10,913 kg and kilogram equivalents of cannabis products, a sequential rise of 3%.

CGC missed analysts’ EBITDA estimates

In the second quarter, CGC’s adjusted EBITDA deteriorated 152% YoY and 69% sequentially to -155.7 million Canadian dollars. Its adjusted EBITDA was worse than the consensus estimate of -92.90 million Canadian dollars. According to its second-quarter earnings press release, its EBITDA decline was associated with ongoing operational losses in Canada and Europe and increasing pre-revenue investments.

Segmental performance in the second quarter

In the second quarter, CGC’s gross medical marijuana revenue rose 37% sequentially to 32.24 million Canadian dollars. revenue from the Canadian market fell 29% YoY but rose 8% sequentially to 14.15 million Canadian dollars. According to CGC’s MD&A (Management Discussion and Analysis), the company is benefiting from increased cultivation, portfolio expansion, and a larger number of medical marijuana patients registering with Spectrum Therapeutics.

Its International medical marijuana revenue also rose 714.13% YoY and 72% sequentially to 18.09 million Canadian dollars in the quarter. According to its MD&A, its international market performance was partly attributable to the inclusion of the financial results of the C3 Cannabinoid Compound Company. The resolution of supply constraints also bolstered the company’s sales in the German medical cannabis market. However, the company doesn’t expect to report a similar rate of growth in the German market in the third quarter.

In the second quarter, CGC reported gross recreational marijuana of 29.78 million Canadian dollars. Its business-to-consumer channel accounted for 13.10 million Canadian dollars, while its business-to-business channel accounted for 16.68 million Canadian dollars. The ongoing rollout of new retail stores drove its 23% sequential revenue growth in the Canadian recreational marijuana market. The company also reported 17% sequential growth in same-store recreational sales in the second quarter.

In the quarter, the company’s net revenue suffered due to a restructuring charge of 32.73 million Canadian dollars. According to its second-quarter earnings press release, this charge was associated with pricing allowances, returns, and return provisions for oil and softgel products. The company has borne this charge due to oversupply in certain markets. It’s also reduced its productions of certain softgel and oil products to counter the supply-demand imbalance in the recreational market.