Canopy Growth Sales Decline In Fourth Quarter, Misses Estimates

Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) announced its financial results in Canadian dollars for the fourth quarter and fiscal year ended March 31, 2019, with annual net revenue growth rising 191% to $226.3 million. Net revenue rose 313% to $94.1 million.

The net loss for the quarter as $323.4 million and earnings per share for the fourth quarter was -$0.98 which missed analysts estimates by $0.66 causing the stock to fall over 6% in early market trading. This compares to a net loss of $54.4 million or $0.31 per share for the same time period last year.

In addition to the earnings miss, the company noted that its adjusted EBITDA came in at a loss of $257.0 million in fiscal 2019 versus a loss of $36.1 million for 2018. The company attributed the year-over-year loss to the investments made in fiscal 2019 sales and marketing and general and administrative costs.

The average selling price per gram fell 11% from $8.43 last year to $7.49 in this year’s fourth quarter. Although the company did report that medical prices rose 2% and international prices rose 4% for the same time period.

In addition to the losses, sales declined as well on a sequential basis. Gross adult use cannabis sales in the quarter fell 4% to 68.9 million from the third quarter. Medical marijuana dropped 41% from the third quarter to the fourth quarter’s $11.6 million Canopy said this was due to a product transition for Tweed, DNA Genetics, LBS and certain CraftGrow partners to the recreational channel. The company says it has been remedied.

International medical sales generated revenue of $10.1 million in fiscal 2019, but this category’s gross revenue of $1.6 million in the fourth quarter fell 25% year-over-year. Canopy said that “European sales were negatively impacted by supply challenges in Canada, with the company prioritizing its Canadian customers.”

On a positive note, sales of Storz & Bickel vaporizer devices, along with revenue from other strategic sources including extraction services, and clinic partners, resulted in $34 million in other revenue generated in fiscal 2019 giving the sale line a nice extra boost.

“The fourth quarter wraps up a historic year with major steps taken in Canada to build-out our national platform while scaling all of our processes to bring cannabis to market. The third quarter of the year benefitted from months of advanced production while the fourth quarter relied more on efficient throughput and a more automated platform,” said Bruce Linton, Chairman, and Co-CEO of Canopy Growth. “With more product formats coming to the Canadian market later in the year, we are working hard to ensure that we are ready to hit the ground running with products, formats, and brands that Canadians trust.”

Even with these negatives, Canopy remains the cannabis company with the largest market share in Canada. It is also sitting on $4.5 billion as of March 31, 2019, in cash and cash equivalents.  Canopy doubled its harvest size from the fiscal third quarter of 2019 to the fiscal fourth quarter of 2019, and it expects to do so again as it moves from the fourth quarter to the first.

Spending Money To Make Money

The sales and marketing increased from $38.2 million  to $154.4 million as the company invested in brand-building, consumer marketing, and promotional campaigns for the Tweed, Tokyo Smoke, Spectrum Therapeutics, active partner brands, as well as the development of cannabis and CBD consumer products and brands expected to be launched towards the end of fiscal 2020.

The company said that general and administrative expenses in fiscal 2019 were $168.5 million, reflecting the ongoing investments in building commercial capacity, governance and public company compliance costs associated with TSX and NYSE listings, legal and professional services in expanding operations.

The statement said that acquisition-related expenses were $23.4 million in fiscal 2019, with Canopy Growth closing on several transactions in the year including the acquisition of HIKU Brands Company Ltd., ebbu, Inc., Storz & Bickel GmbH & Co. KG, and Canopy Health Innovations Inc. Acquisitions announced subsequent to fiscal 2019 – including This Works Products Limited, Canamo y Fibras Naturales, S.L., and the future acquisition of Acreage – incurred related expenses throughout fiscal 2019 as well.

Canopy and Acreage shareholders approved of the merger this week.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor 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 Master's degree in Business Journalism from New York University.

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