Canopy takes hit on ambitious launch plan

An e-commerce shift by Canada’s biggest pot producer took a bite out of its firstquarter earnings, but leaves it in a position to profit when the country’s cannabis prohibition ends next year, the company suggests.

Canopy Growth Corp. reported Monday that a move from three e-commerce sites to one “Amazon-like” platform curbed sales over a 10-business-day stretch in April, which cut into the company’s revenue for its first quarter of fiscal 2018. Canopy currently has several cannabis brands under its banner, including Tweed, marketed by rapper Snoop Dogg.

“The process of launching Tweed Main Street did negatively affect the month of April,” said Bruce Linton, chairman and chief executive of Canopy, on Monday. “When you merge and move, you have to slow down or shut down, and so we were willing to take that hit and it seemed to be certainly worth it, because as we run forward, it’s much easier and much more scalable.”

Despite the growing pains, Canopy’s first-quarter revenue reached $15.9 million, a 127 per cent increase over the $7 million reported for the same period in 2016. However, the Smiths Falls, Ont.based company also reported greater administrative and marketing costs for the quarter, and took a net loss of $4.4 million, up from a $3.9-million loss for the same three months of last year.

The latest results come with the federal government still aiming to legalize recreational marijuana by July 2018. While there have been suggestions from some provinces that this could be too much, too soon, Ottawa has said it is prepared to supervise a mail-order pot program if provinces aren’t ready.

Canopy said in its filings that it expects some Canadian provinces will take their time with brick-andmortar sales of recreational cannabis, creating an opportunity for mail-order delivery.

“While responsible government agencies and/or designated private companies in their respective provinces are likely to begin rolling out physical retail storefront locations in the months after the legal recreational market opens, Canopy Growth believes that, in certain provinces, it will take two years and possibly longer to rollout the full network of regulated cannabis retail stores that is required to satisfy consumer demand,” said the company Monday.

“As such, Canopy Growth believes that the majority of sales in the first two years of the recreational market will go through the mail order system.”

Canopy launched its Tweed Main Street online store in April, “a single online marketplace that enables registered customers to purchase medicinal cannabis from multiple producers across numerous brands.”

Growing operations for its Mettrum medical brand “were mostly inactive” in the first quarter, the company said.

Shares of Canopy, which owns the site of an old Hershey chocolate factory in Smiths Falls, initially declined before ending the day 1.59 per cent higher, to $8.96.