Canopy Growth Stock Jumps As Revenue Jumps

Canopy Growth Corporation (NYSE: CGC) reported net revenue of $135.3 million for the second quarter fiscal 2021 ended September 30, 2020, causing the stock to jump in early trading. This was a 77% increase over last year’s fiscal second-quarter revenue of $76.6 million. Still, Canopy delivered a net loss of $96.6 million versus last year’s net income of $242 million for the same time period.

The company also reported a loss per share of ($0.09) which beat the MarketWatch estimate for a loss of ($0.28). The stock was lately trading at $26, an increase of 13%. The company attributed the revenue growth to an increase in Canadian recreational revenue, continued strength in Storz & Bickel vaporizer sales and ThisWorks, and contribution from BioSteel, which was acquired in October 2019 . The net loss was driven by lower other income. Canopy also said that the increase versus the prior year period also benefited from favorable comparison, as Q2 2020 results included a $32.7 million charge for returns, return provisions, and pricing allowances primarily related to restructuring the company’s recreational softgel & oil portfolio.

“Our renewed strategy of winning consumer mindshare, along with increased agility and execution, has resulted in record net revenue for the second quarter and momentum across key areas of business,” said David Klein, CEO.  “Canopy Growth is positioned for continued growth as we establish a strong leadership position that is showcased through our vast portfolio of differentiated brands and products – including our industry-leading cannabis-infused beverages.”

The company’s total SG&A expenses dropped by 19% from last year as the company made cuts in Sales & Marketing and General & Administrative expenses, however, this was offset by higher Research & Development expenses. The 30% drop in sales expenses reflected lower compensation expenses resulting from corporate restructuring actions taken earlier in the year, delayed or canceled marketing activities, and reduced travel-related expenses due to the COVID-19 pandemic. G&A expenses decreased by 26%, while R&D expenses rose by 19% mainly driven by ongoing research studies that commenced after Q2 2020.  Share-based compensation expenses decreased 76% over last year’s second quarter.

“We saw another quarter of improvement in our operating expense ratio while our marketing and R&D investments are being re-directed to drive sales,” added Mike Lee, CFO. “Importantly, our end-to-end review has identified cost savings opportunities in the range of $150 – $200 million across the cost of goods sold, general and administrative expenses, and inventory, and efforts are underway to quickly capture value.  Leveraging ongoing improvements across our business, we are accelerating our path to profitability, notably in our largest market, Canada .”

While cash levels fell, the company is still sitting on top of a mountain of money. The company reported that cash and short-term investments amounted to $1.722 billion on September 30, 2020, representing a decrease of $254 million from $1.976 billion on March 31, 2020, reflecting the EBITDA loss and capital investments.

Beverages

Canopy continues to show its growing strength in the small beverage market for the cannabis industry. The company noted that it has established a leadership position in cannabis-infused beverage segment during the quarter with a 54% dollar share with five Ready-to-Drink  THC cannabis beverages under Tweed, Houseplant, and DeepSpace brands in the Canadian recreational market. “We launched Quatreau RTD CBD beverages across Canada in the current quarter. To date, over 2.0 million beverage units have been shipped since late March 2020.”

Canopy’s BioSteel signed distribution agreements with beverage distribution companies, Reyes Beer Division and Manhattan Beer, alongside several other partnerships through Constellation Brands’ distribution network. “These distribution agreements will bring BioSteel’s ready-to-drink, electrolyte-packed sports hydration beverages to consumers, covering 100% of the US market through direct-store-delivery (DSD) network by early 2021. BioSteel is currently in discussion with several large national accounts and expects to have products on the shelf across Food/Drug/Mass as well as Convenience & Gas channel over the course of the calendar year 2021.”

Debra Borchardt

Debra BorchardtDebra 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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