Canopy Growth Stock Tanks Over 18% on Weak Q4 Earnings

Today, Canopy Growth (NYSE:CGC)(TSE:WEED) reported its results for the fourth quarter of fiscal 2020. For the quarter, which ended on March 31, the company reported revenues of 107.9 million Canadian dollars. The revenues fell 16.2% short of analysts’ expectations of 128.8 million Canadian dollars. The adjusted EBITDA loss came in at 102 million Canadian dollars, which was 15% higher than analysts’ expectations of 88.67 Canadian dollars. During the quarter, the company burnt 304.7 million Canadian dollars, which brought its gross cash balance down to 2.0 billion Canadian dollars as of March 31.

Meanwhile, Canopy Growth’s management announced that it would implement strategy reset and organization redesign this fiscal year to build a sustainable business model creating long-term value for shareholders. Management withdrew its previous timeline for reporting a positive adjusted EBITDA and net income citing its restructuring efforts and the COVID-19 outbreak. The weak fourth-quarter performance and withdrawal of its guidance for reporting a positive EBITDA didn’t sit well with investors. The stock was trading over 18% lower in pre-market trading today. 

Canopy Growth’s revenue falls sequentially

Canopy Growth’s fourth-quarter revenue grew 14.7% YoY (year-over-year) from 94.1 million Canadian dollars in the fourth quarter of 2019. However, the revenue fell 12.8% from 123.8 million Canadian dollars in the third quarter of fiscal 2020. The decline in Canadian recreational sales dragged the company’s revenue down. Growth in medical sales in Canada and international markets offset some of the declines.

Sequentially, Canopy Growth’s recreational sales fell 28% to 49.8 million Canadian dollars. The business-to-business sales fell 31%, while business-to-customer sales declined by 14% during the same period. Weakness in the flower and pre-roll joint sales more than offset the incremental revenue in soft gels, oil, and Cannabis 2.0 products and dragged the company’s B2B sales down. Meanwhile, management blamed the excepted decline in seasonal demand and the closure of company-owned retail stores amid the outbreak for the decline in its B2C sales.

Canopy Growth’s medical sales in Canada and international markets grew 1% and 11%, respectively. The revenue from C3 grew 10% compared to the third quarter. C3 is a manufacturer and distributor of dronabinol, a registered pharmaceutical drug in Europe, which was acquired by Canopy Growth in May 2019. In Germany, the company’s cannabis sales grew 14% compared to the third quarter. With the growth in international sales, the contribution increased to 24% of the company’s total sales.

Canopy Growth’s EBITDA Losses expands

Compared to the adjusted EBITDA loss of 97.0 million Canadian dollars in the third quarter, Canopy Growth’s adjusted EBITDA losses expanded by 5.0 million to 102.0 million Canadian dollars. The decline in sales and higher operating expenses hiked the company’s adjusted EBITDA losses.

For the quarter, Canopy Growth’s gross margins stood at a loss of 85%. However, removing one-time items, the adjusted gross margin stood at 42%. The gross margin represents an improvement of 11% from the third quarter. Compared to the third quarter, the company’s SG&A expenses rose 17%. During the quarter, the company’s G&A and sales and marketing expenses increased by 15 million Canadian dollars.

Canopy Growth reported a net loss of 1.3 billion Canadian dollars. However, the net loss included restructuring and impairment charges of 743 million Canadian dollars.

YTD stock performance

Canopy Growth stock rose in the last few days due to the expectation of a strong fourth-quarter performance. As of May 28, the company was trading at 30.57 Canadian dollars, which represents a rise of 11.9% since the beginning of this year. However, today’s fall could bring Canopy Growth’s returns for the year into negative territory. So far this year, the company has outperformed its peers. Aurora Cannabis (NYSE:ACB), Aphria (NYSE:APHA), and Tilray (NASDAQ:TLRY) have all fallen by 36.7%, 12.4%, and 39.3% YTD, respectively.