Canopy’s new mantra: An end to the ugly stuff
Stock surges more than 10% Tuesday
OTTAWA • Canopy Growth Corp.’s latest quarterly financial statements, published Tuesday, were a bit of a mess. It’s become a routine.
There are just so many moving parts and assumptions underpinning the accounts of this cannabis giant, which went from zero to 100 kilometres per hour in preparation for the 2018 legalization of recreational marijuana in Canada. The Smiths Falls, Ont., firm has been scaling back ever since.
The result in the third fiscal quarter ended Dec. 31 was a massive $829 million net loss alongside record revenues of $152.5 million.
CEO David Klein said that’s the end of the ugly stuff, which was enough to trigger a surge of more than 10 per cent in the company’s share price Tuesday morning. He is now forecasting profits and strong revenue growth for as far as the eye can see.
Well, adjusted profits anyway. More specifically, Klein expects adjusted earnings before taxes and depreciation will be “positive” during the last half of fiscal 2022, which begins this April 1. He further predicted Canopy Growth should generate cash on operations in fiscal 2023.
As for revenues, that’s a less complicated projection. Klein forecasted net revenues would jump 40 to 50 per cent annually over the next three years, which at the low end would mean $1.6 billion by fiscal 2024. Note that none of this assumes the new democratic administration of President Joe biden will legalize cannabis at the federal level — something he and congressional leaders have pledged to do.
If u.s. legislators do finally reform federal cannabis laws, Canopy Growth confirmed Tuesday it intends to exercise its right to acquire control of New york-based Acreage Holdings, a cannabis firm with holdings in multiple states.
The potential for u.s. sales had already energized Canopy Growth’s shares. The company’s market value doubled to $20 billion between u.s. election week and Feb. 8.
but not all the gain was related to what the u.s. Congress might do. The past few months have also seen significant changes in the company itself. The company’s head count is down nearly 30 per cent compared to a year ago to an estimated 3,200. The new managers installed by the firm’s biggest investor — u.s. beer, wine and spirits distributor Constellation brands — have been busy trimming excess production and targeting the new industry’s many markets with more precision. The ultimate goal: consistency and maybe even stability in results.
The closure last december of operations in Newfoundland, New brunswick, edmonton and bowmanville, Ont., involving 17 per cent of the company’s indoor production, contributed to a $416-million restructuring and asset impairment charge in the third quarter. Adjustments to the fair value of Canopy Growth’s complicated financial instruments accounted for another $291 million of the company’s large quarterly loss.
Most of the losses did not require dipping into actual cash. Nevertheless, Canopy Growth finished the quarter with $1.6 billion in its coffers, down from $2 billion at the end of March. It also compares with more than $5 billion as recently as 2018, when Constellation brands acquired its minority stake.
What did Constellation get for all that? An unwieldy, multinational operation with investments in hundreds of different products.
even now, Klein acknowledged Tuesday, Canopy Growth is operating inefficiently.
“There’s some risk out there,” he said on a company conference call. “We do have a high cost structure.”
In large part, that’s because Canopy Growth is geared up to serve significantly more customers than it is at the moment. but if Klein is right about growing sales at 40 per cent plus each year, that situation will soon resolve.
“We feel like we’re definitely headed in the right direction,” Klein offered.
Canopy shares ended that day at $62.35, up 11.9 per cent in Toronto.