What Analysts Expect from Canopy Growth’s Revenues

Canopy Growth (CGC) is set to release its fiscal 2020 second-quarter earnings results on November 14. The company missed the consensus revenue estimate in the first quarter. Here, we’ll see what revenue performance analysts expect from CGC in the upcoming quarter.

Canopy Growth’s revenue estimates

In the second quarter, analysts expect CGC’s revenue to rise 369.25% year-over-year and 209.77% sequentially to around 109.46 million Canadian dollars. This is lower than the previous revenue estimate of 112.86 million Canadian dollars, which had implied year-over-year growth of 383.79%.

Analysts now expect the company to report revenues of 544.57 million Canadian dollars in fiscal 2020, lower than the previous estimate of $547.16 million. This estimate is also much lower than the fiscal 2020 revenue guidance of $1 billion.

Canopy Growth losing share in the Canadian medical cannabis market

Canopy Growth seems to be facing challenges in the Canadian medical cannabis market. Even in the first quarter, the company reported Canadian medical cannabis revenues of $13.1 million, a year-over-year decline of 38%. However, the company’s international medical cannabis revenues rose year-over-year by 209% to $10.5 million in the first quarter.

On November 5, as TheFly reported, Cantor Fitzgerald analyst Pablo Zuanic initiated coverage of the company with a “neutral” rating and target price of 27 Canadian dollars. Zuanic has expressed concern about the company’s position in the Canadian medical cannabis market despite its significant medical IP assets. The analyst also highlighted the company’s low gross margins compared to peers.

What else will affect CGC’s revenues?

Other headwinds in the cannabis industry may also affect Canopy Growth’s revenue performance. On October 31, as TheFly reported, Ladenburg Thalmann analyst Glenn Mattson highlighted flat market growth in Canada as the biggest negative driver for the cannabis sector. Mattson also highlighted a much slower retail rollout as a key concern for the industry. Plus, Mattson believes many companies may have to write down their goodwill. This outlook is due to the much higher valuations paid by the cannabis companies for acquisitions in previous years.

Mattson, however, also expressed hopes for upside potential for cannabis stocks due to Cannabis 2.0 legalization. According to the company’s investor presentation, Canopy Growth is focusing on launching differentiated Cannabis 2.0 beverages, vapes, and edibles in the third quarter of fiscal 2020. Mattson maintained a “buy” rating for CGC but lowered his target price from $42 to $29. He also maintained a “buy” rating for Aurora Cannabis (ACB) but reduced its target price from $9 to $6.

According to an investor presentation, Canopy Growth accounts for 25% of the Canadian recreational cannabis market by listings. In the first quarter, the company reported Canadian recreational cannabis revenues of 60.8 million Canadian dollars, a sequential rise of 88%.

Canopy Growth is also focusing on entering the US CBD (Cannabidiol) market in the fourth quarter of fiscal 2020. According to an investor presentation, the company will launch CBD products in several categories, including health and wellness, sleep solutions, skin and beauty, and pet aids.

The company has already planted low-cost and high-yield hemp plants across 4,000 acres of land. Interestingly, Canopy Growth has also hired Marth Stewart as a product advisor. It expects the total addressable market in the global CBD space to exceed 250 billion Canadian dollars.