Weak recreational pot sales a drag on Canopy
Quarterly wholesale revenue down 36% from a year earlier
Canopy Growth Corp., the largest cannabis company by market value, plunged on Friday after reporting falling recreational sales. The company also pushed back its target date to reach profitability.
The results appeared to spark investor pessimism about the rest of the cannabis industry, dragging down the shares of peers like Tilray Inc., Cronos Group Inc. and Organigram Holdings Inc.
Canopy’s quarterly revenue from Canadian recreational wholesale — which makes up about a third of total sales — slumped 36 per cent from a year earlier.
Sales to consumers, via Canopy’s retail outlets, rose on an annual basis but fell 14 per cent from the previous quarter.
Canopy’s shares fell 8.05 per cent on Monday to close at $22.26.
The company said it closed its Canadian retail locations late in the period due to the COVID-19 pandemic. It also recorded a net loss for a fifth straight quarter.
The results showed a wider loss and sales decline at a time when most peers are showing improvements, said William Kirk, an analyst with MKM Partners, in a research note.
The coronavirus lockdown has sparked pantry loading, with consumers boosting their use of cannabis, at least in the U.S. market, studies have shown. Canopy also recorded an impairment charge of $743 million as part of the company’s strategic shift that has included cutting 85 jobs, exiting South Africa, shutting a facility in Saskatchewan and ending cultivation in Latin America.
Canopy had previously said it would record a charge of $700 million to $800 million.
Canopy’s U.S. shares plunged as much as 22 per cent to $16.95 on Friday — the most intraday since 2016. That erased the stock’s previous gain of three per cent in 2020 through Thursday’s close.
The company, based in Smiths
Falls, Ont., said sales of gels, oils, beverages, chocolates and vaping products rose — but not enough to offset a decline in raw cannabis and pre-rolled joints.
Canopy also withdrew its previous forecast that it would reach profitability on a consolidated basis in fiscal 2022. It may release new projections in the second half of its current fiscal year, depending on the impact of COVID-19.
Canopy’s peers “have shifted to value-priced segments that have gained notable traction as of late,” Canaccord Genuity analyst Matt Bottomley said in a research note Friday.
Their increases in volume over the prior quarter suggest Canopy is losing market share, he said.
At the start of 2020, Canopy started to sell a new range of products, such as chocolates, beverages and vape products, which analysts had expected to boost revenue.