Canopy more than dou­bles rev­enue in third quar­ter as profit slides

The Globe and Mail (Ottawa/Quebec Edition) - - OPINION & ANALYSIS - ARMINA LIG­AYA TORONTO

Li­censed cannabis pro­ducer Canopy Growth Corp. more than dou­bled its third-quar­ter rev­enue com­pared with a year ago but fell short of an­a­lysts’ ex­pec­ta­tions for even stronger sales.

The Smiths Falls, Ont.-based com­pany re­ported rev­enue of $21.7-mil­lion for the quar­ter ended Dec. 31, more than dou­ble the $9.8-mil­lion earned in the last three months of 2016.

The re­sults were driven by a sig­nif­i­cant in­crease in do­mes­tic sales as well as sales in the Ger­man med­i­cal mar­ket, chair­man and chief ex­ec­u­tive Bruce Lin­ton told an­a­lysts on a con­fer­ence call Wed­nes­day.

How­ever, the mar­ket was ex­pect­ing quar­terly rev­enue of $24.2-mil­lion, ac­cord­ing to an­a­lysts sur­veyed by Thom­son Reuters.

The com­pany also saw a roughly 138-per-cent in­crease in ac­tive reg­is­tered pa­tients to 69,000, up from 29,000 a year ago. How­ever, an­a­lysts say pa­tient num­bers can be a murky met­ric be­cause med­i­cal mar­i­juana pa­tients may reg­is­ter with more than one li­censed pro­ducer and as the over­all num­ber of pa­tients in­creases.

The growth came as Canopy’s prof­its at­trib­ut­able to the com­pany fell to $1.6-mil­lion, or a penny per di­luted share, from nearly $3-mil­lion, or two cents per di­luted share, a year ago.

The com­pany also an­nounced on Wed­nes­day that it was one of six li­censed pro­duc­ers to sign a let­ter of in­tent to sup­ply the Que­bec mar­ket. As part of the agree­ment with the So­ciété des al­cools du Québec, which will han­dle sales of recre­ational cannabis in the prov­ince when it is le­gal in Canada later this year, Canopy will pro­vide 12,000 kilo­grams of cannabis an­nu­ally.

Canopy said it sold 2,330 kg and kilo­gram equiv­a­lents of cannabis in the quar­ter at an av­er­age price of $8.30 a gram. That com­pared with 1,245 kilo­grams at $7.36 per gram a year ear­lier.

The higher av­er­age price stemmed from the ad­di­tion of more oil prod­ucts, such as soft­gel cap­sules – which have a higher mar­gin than dried cannabis – and the higher sell­ing price of med­i­cal cannabis in Ger­many.

Cannabis oil sales ac­counted 23 per cent of Canopy’s rev­enue for the lat­est quar­ter, com­pared with 13 per cent in the same pe­riod a year ago.

Canopy’s earn­ings be­fore in­ter­est, tax and other items was a loss of $7.1-mil­lion, com­pared with a loss of $1.4-mil­lion dur­ing the same pe­riod a year ago.

That fig­ure re­moves the im­pact of in­ter­na­tional ac­count­ing rules for the agri­cul­tural in­dus­try that re­quires cannabis com­pa­nies to record the value of their plants as in­come as they grow, be­fore the prod­uct is sold, lift­ing the bot­tom line.

Canopy’s EBITDA was af­fected by in­vest­ments in brand­ing and ex­pand­ing its in­ter­na­tional reach and other ac­tiv­i­ties dur­ing the quar­ter, chief fi­nan­cial of­fi­cer Tim Saun­ders said.

These ac­tions are “re­ally nec­es­sary to strengthen the com­pany’s global lead­er­ship po­si­tion, both in Canada and in­ter­na­tion­ally,” Mr. Saun­ders told an­a­lysts.

As well, the com­pany’s gross mar­gins be­fore fair value ad­just­ments shrunk from 58 per cent of sales, or $12.5-mil­lion, com­pared with 64 per cent of sales, or $6.2mil­lion, in the fis­cal third quar­ter a year ago.

Mean­while, Mr. Lin­ton said Canopy has al­ready be­gun col­lab­o­rat­ing on cannabis-based drinks with Con­stel­la­tion Brands Inc. since the Corona-beer maker signed a deal to ac­quire a nearly 10-per-cent stake in the li­censed pro­ducer for $245-mil­lion in Oc­to­ber.

Even though the gov­ern­ment’s pro­posed cannabis reg­u­la­tions do not al­low for sales of recre­ational ed­i­bles, the com­pa­nies are push­ing ahead with the ex­pec­ta­tion that the pol­icy will change.

“We are on to specifics of brands, flavour­ings, for­mats,” Mr. Lin­ton told an­a­lysts. “Were head­ing down, mak­ing sure we’ll have great stuff by 2019.”

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