Canopy Growth Records $829 Net Loss In Third Quarter

Canopy Growth Corporation (NASDAQ: CGC) announced its financial results for the third quarter fiscal 2021 ending December 31, 2020, with net revenue of $153 million in Q3 2021, an increase of 23% versus Q3 2020. Canopy Growth said that $99 million of that revenue was driven by an increase in Canadian recreational and International medical cannabis revenue. Despite the increase in revenue, the company also recorded an eye-popping net loss of $829 million.

Canopy said that this was a $720 million wider loss than the previous quarter and blamed the loss on impairment and restructuring charges and other related charges of $416 million. $382 million of those related charges were as a result of the announcement on December 9, 2020. Canopy shocked investors at the time when it announced it would cease operations at several sites, plus its outdoor cannabis grow operations in Saskatchewan. The company said those decisions were the partial outcome of an ongoing end-to-end review designed to improve its margins. At the time, Canopy said it expected to record estimated total pre-tax charges of approximately $350 -400 million in the third and fourth quarters of Fiscal 2021.

“We delivered another quarter of record net revenue, with growth across all our businesses, led by improved commercial and supply chain execution,” said David Klein , CEO. “We are building a track record of winning in our core markets, while also accelerating our U.S. growth strategy with the momentum building behind the promising cannabis reform in the U.S.”

“We are executing against our cost savings program, with several initiatives already completed and more underway to build a leaner and more agile business,” added Mike Lee , CFO. “These cost savings, along with our top-line growth and continued cost discipline, puts Canopy firmly on a path to achieve profitability during Fiscal 2022, with further improvement anticipated beyond.” The company divested its shares in Canopy Rivers and increased its ownership in TerrAscend.

Of the total impairment and restructuring charges recorded during the third quarter, approximately 15% was a cash charge. Canopy said other expenses totaled $291 million during the quarter stemming from non-cash fair value changes, mostly driven by the company’s higher stock price.

While the losses are staggering,  Canopy is resting comfortably on cash and short-term investments that amounted to $1.59 billion on December 31, 2020. Still, this represented a decrease of $0.39 billion from $1.98 billion on March 31, 2020, reflecting the EBITDA loss and capital investments. The adjusted EBITDA loss was $68 million in the 2021 third quarter versus a loss of $97 million in the 2020 third quarter driven by net revenue growth and a decline in operating expenses.

Lowered Expenses

Canopy reported that total SG&A expenses declined by 15% versus the 2020 third quarter, driven by year-over-year reductions in Sales & Marketing, General & Administrative and Research and Development expenses. Sales & Marketing expenses declined by 15% reflecting lower advertising and marketing expenses versus last year’s spending attributable to product marketing and brand awareness campaigns in support of its Cannabis 2.0 products, partially offset by higher sponsorship fees for BioSteel and increased brand spending in support of the U.S. CBD business. G&A expenses declined by 23% and were due primarily to a reduction in costs attributable to corporate restructuring actions taken earlier in the year. R&D expenses decreased by 33% also driven by lower compensation expenses resulting from corporate restructuring actions taken earlier in the year.  Share-based compensation expenses decreased 68% over last year’s third quarter.

Positive Events

While the pain of making these huge changes has sucked the oxygen out of the room, the company has actually managed to make progress on other fronts. The Canadian recreational market share increased to 15.7% during the third quarter. “Our market share grew by 60 bps in Alberta and 120 bps in British Columbia, while it declined by 80 bps in Ontario in Q3 2021 vs Q2 2021. Our market share in Ontario improved by 150 bps during the latest 4-weeks ended January 17, 2021, vs Q3 2021,” said the company in its statement. Canopy said that its market share in the flower category grew by 180 bps sequentially and that it continued to drive market share gains in the growing value flower segment.

Beverages captured 34% market share in the quarter, even as new beverage brands have entered the marketplace. Canopy beverages retained the top 3 brands and our beverage brands are commanding higher velocity versus competitive set on a per SKU basis.

Martha Stewart’s health and wellness CBD products are seeing strong consumer demand, with the brand already outselling over 94% of all CBD brands in the U.S. in just 4 months since launch. Canopy has secured distribution of Martha Stewart CBD collection in 580+ Vitamin Shoppe and Super Supplements retail locations nationwide. Subsequent to quarter-end, Canopy launched CBD pet products under the Martha Stewart CBD and SurityPro CBD brands.

Outlook

The company said that as a result of its organizational changes and cost savings plan it is now projecting a net revenue CAGR of 40%-50% from FY 2022 to FY 2024. The company said it expects positive adjusted EBITDA during the second half of FY 2022 and 20% Adjusted EBITDA margin for the full year FY 2024 and positive operating cash flow for the full year FY 2023 and positive free cash flow for the full year FY 2024.

 

 

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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