Canopy Reports Sales Drop, $115 Million Net Loss

Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced its financial results for the third quarter fiscal 2022 ended December 31, 2021 as revenue dropped from last year as Canadian cannabis sales fell. Canopy reported net revenue of $141 million for the third quarter of fiscal 2022, which was a decline of 8% versus the same time period in 2021. Canopy said that total global cannabis net revenue of $83 million in the quarter declined 20% over the third quarter in 2021. On a positive note, net revenue increased 7% sequentially.

Canopy also delivered a net loss of $115 million, which is a $714 million improvement versus last year. The company said this was “driven primarily by lapping material non-cash asset impairment and restructuring charges in Q3 FY2021 and Other Income totaling $34 million during Q3 FY2022 mostly attributable to non-cash fair value changes of $59 million.”

It wasn’t all disappointing news, Canopy reported that other consumer products revenue came in at $58 million which was an increase of 19% over last year. However, excluding the impact from acquired businesses, net revenue declined 17% and global cannabis net revenue declined 34% versus last year. .

CEO David Klein said, “In the third quarter we actioned to win where it matters – driving record performance in our CPG business from both BioSteel and Storz & Bickel, while beginning to stabilize our Canadian business including maintaining the #1 position in premium flower. Our continued discipline and focus are expected to fortify Canopy’s competitive positioning in Canada as we ambitiously build our U.S. CPG, CBD, and THC strategies.”

Despite the drop in sales and net loss, Canopy is still sitting on cash and short-term investments of $1.4 billion on December 31, 2021. However, this is a decrease of $0.9 billion from $2.3 billion on March 31, 2021, reflecting EBITDA losses, capital investments, and the upfront payment made as consideration for the option to acquire Wana Brands upon federal permissibility of THC in the U.S

CFO Judy Hong said, “Throughout fiscal 2022, we continued to reduce our operating expenses and capital investments. With a renewed sense of urgency, we are focused on achieving profitability in Canada by taking additional steps to simplify our business and optimize our expenses, while making strategic investments in key growth areas.”

Canadian Cannabis Problems

Canopy is really having problems with flower, which is the most in-demand form factor for cannabis. The company noted that adult-use cannabis B2B net sales dropped 23% over the last year and was mostly due to the continued insufficient supply of flower products with in-demand attributes and continued price compression, particularly in the value-priced dried flower category. “These factors were partially offset by contribution from the acquisitions of Ace Valley and Supreme Cannabis.”

Recreational B2C net sales in the quarter declined by 28% versus last year and was largely driven by increased competition from the rapid increase in third-party retail locations across provinces. Medical net revenue didn’t fare much better as those sales decreased 7% from last yearQ3 FY2021 driven primarily by higher average order sizes offset by a fewer number of orders.

European Business

In December Canopy announced plans to sell all of its interest in C3 Cannabinoid Compound Company GmbH (“C3“) to a European pharmaceutical company headquartered in Germany. C3 develops and manufactures cannabinoid-based pharmaceutical products for distribution in Germany and certain other European countries. The divestiture was completed on January 31, 2022 and the company received a cash payment of $128 million (€89 million). The Company will also be entitled to an earnout payment of up to €43 million subject to the achievement of certain milestones by C3. C3 revenue in the quarter decreased 45% year-over-year as a result of increased competition and price compression.

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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