Canopy Growth books $1.3 billion Q1 loss

SMITH FALLS, ONT. — Canopy Growth Corp. shares were down more than 10 per cent Thursday after the cannabis producer reported first quarter results that widely missed analysts' expectations.

On Wednesday Canopy reported a net loss of nearly $1.3 billion as higher expenses offset revenue growth in the first quarter.

Canopy reported it lost $1.28 billion during the three months ended June 30, its fiscal first quarter of 2020, compared with a loss of $91 million in the first quarter of fiscal 2019.

The loss equalled $3.70 per share, compared with a loss of 40 cents per share in the prior year. The surge in revenue was offset by a 215 per cent increase in operating expenses to $229.2 million.

The company based in Smith Falls, Ont., said the increased loss is mainly due to a non-cash loss of $1.18 million on the extinguishment of warrants held by alcohol giant Constellation Brands Inc., which invested $5 billion last November.

It also saw a significant decrease in quarter-over-quarter gross margins, or the spread between sale price and costs, as the company has been focused on investing in rapid expansion.

Gross margin before fair value impacts in cost of sales in the quarter was $13.2 million, or 15 per cent of net revenue. In the same quarter of 2019, that metric amounted to $11.1 million, or 43 per cent of net revenue.

The company said the difference was mainly due to the impact of $16.2 million in operating costs relating to facilities not yet producing cannabis or had under-utilized capacity. It also cited a shift in the product mix away from higher-margin products as inventories evened out.

Both Canopy’s loss and revenue were worse than analysts had expected.

Analysts had predicted the company would book a loss of 70 cents per share on $107.1 in revenue, according to financial data firm Refinitiv.

The company generated $90.5 million in net revenues, up from $25.9 million a year earlier, before recreational marijuana was legal in Canada.

Most of the additional revenues in the quarter came from the sale of recreational marijuana that was legalized last October. Medical cannabis revenues decreased five per cent, with a 39 per cent drop in Canada offset by a large growth in international sales.

The revenue increase was driven by a record harvest of more than 40,000 kilograms — the first full-scale harvest since retrofitting its large greenhouses — that amounted to 183 per cent more product than in the fourth quarter.

“Our recent harvests are proof that our focus on operational excellence is working, and we look forward to showing both our Canadian and U.S. customers what we’ve been working on behind the scenes to prepare for the next wave of products coming later this year,” stated interim CEO Mark Zekulin, who was appointed in July upon the termination of Bruce Linton as cochief executive officer.

Linton was abruptly ousted from both the top job and the board of the cannabis company he grew into a dominant global player after Canopy reported a wider-than-expected fourthquarter net loss, despite a jump in net revenue that beat market estimates.