Canopy Growth captured nearly a third of recreational cannabis market in 2018
Sales reach $98M in last quarter as company seeks further investments
TORONTO Canopy Growth Corp. managed to lock down nearly a third of the country’s fledgling recreational cannabis market last year, with the company’s chairman optimistic its investments in research and product development will help it keep that position.
BMO Capital Markets said in a note Friday they estimated Canopy’s recreational sales volume during the quarter ended Dec. 31 represented a market share of 30 per cent.
Asked during a Friday conference call if that was a target the company expected to be able to hold, Bruce Linton, chairman and co-CEO of Canopy, said he expected that within the next two quarterly conference calls, the talk would shift more toward converting cannabis into various consumer products.
This, he added, is where the company has made significant investments, albeit ones currently weighing on Canopy’s financial results.
“And so, I would be kind of upset if we can’t maintain or improve, because we’re far enough ahead and have been thinking that way and working on things for three to five years that I think are just going to be ready to take hold in the next three to seven quarters,” Linton said.
“So yes, we should dominate, and I will be extraordinarily disappointed if we don’t do that through science and (intellectual property) claims and products.”
Rival Aurora Cannabis Inc. reportedly had about 20 per cent of the recreational market.
Smiths Falls, Ont.-based Canopy has made a number of acquisitions over the past year, including the purchase of Colorado-based hemp researcher Ebbu Inc. It has vowed to make further investments, such as between US$100 million and US$150 million in operations in New York state, where it was granted a hemp processing and production licence in January. A subsidiary, Canopy Health Innovations, has begun “in-human” clinical trials to test out the use of medical marijuana in treating insomnia.
Canopy also has something other cannabis companies do not when it comes to dealmaking: a multibillion-dollar investment in itself made by U.S.-based alcohol giant Constellation Brands Inc.
Even as it eyes the future, Canopy reported Friday that it got off to a solid start in the early days of cannabis legalization in Canada, although rising costs associated with breaking into the market dampened some of the enthusiasm.
The company booked a profit of $74.9 million for the three months ended Dec. 31, up from $11 million from a year before, prior to Canada’s legalization of recreational cannabis in Oct. 2018. The company took a net loss of nearly $347 million for the last nine months of 2018, compared to a profit of $227,000 a year ago.
Canopy reported total sales of nearly $98 million for the threemonth period, up 350 per cent. Of that, $71.6 million came from the fledgling recreational market. Net revenue was up 282 per cent to $83 million, but medical sales dipped eight per cent to $18.6 million.
The company also noted that both sales and marketing, as well as general and administrative costs, “were up significantly relative to the same period last year.” Overall, the loss from its operations rose to more than $157 million for the quarter, from $26 million a year prior, which was chiefly offset by fair value changes the company said it realized on various financial assets and liabilities.
Sales and marketing costs rose from around $9.4 million for the three months ended Dec. 31, 2017, to nearly $45 million for the same three months of 2018. General and administrative expenses rose from $11 million to $46 million. Acquisition-related costs rose to $4.5 million from $790,000.
“Businesses built on top quality product and customer service require upfront investment,” the company said. “Management expects these expenses to level off in the near term in its Canadian operations.”
Production costs ticked up as well, with the average selling price per gram on the medical side rising to $9.77 from $8.21 from a year ago. The recreational price was $6.96.
Canopy shares closed Friday at $62.81 in Toronto, up 1.5 per cent.