Canopy revenues grow as pot patients on rise
But inventory constraints hamper medical marijuana company’s sales
A 180 per cent increase in revenue is a barometer of a successful quarter for most companies, but it managed to disappoint analysts following Canada’s first billiondollar marijuana company, Canopy Growth Corp., where inventory constraints limited its third quarter sales potential.
The company, based out of a converted chocolate factory in Smiths Falls, Ont., turned a profit for the first time in its short history, booking $3 million in net income, compared to a net loss of $3.3 million in the prior year period.
Revenue rose 180 per cent yearover-year to $9.8 million, lower than analysts’ estimates of around $10.9 million.
Canopy’s share price fell 8.08 per cent to close at $11.95 on the Toronto Stock Exchange.
Inventory at the end of December was valued at $50.6 million. CEO Bruce Linton told analysts the company was running low on some key products such as mid-tohigh THC level products as well as oils, a popular alternative to smoking for medical marijuana patients.
“If we had a bit more product and a bit more diverse product, we expected a bigger number,” he said.
The revenue constraints were due to a lack of supply amid increasing demand.
“There are more people becoming patients than there are capable suppliers,” Linton said.
Its patient base has increased some 260 per cent to 29,000 in December compared to 8,000 in December 2016.
Inventory shortfalls have been a problem for many of Canada’s licensed medical marijuana producers and analysts believe a bigger supply/demand imbalance could be in store after the Liberal government legalizes recreational marijuana.
Legislation is expected this spring but the full market isn’t expected to rollout until 2018 or 2019, when Canopy expects to sell its recreational-focused Tweed brand at physical locations. Health Canada regulations currently restricts medical marijuana sales to mail orders.
Linton said he is more confident about meeting customer demand going forward as “the cupboard is reasonably full. The company restocked shelves Feb. 1 and recorded its first day of sales worth more than $1 million.
“A million dollar day is a pretty substantial scale point. Less than two years ago we had whole quarters with $1 million in sales,” Linton said.
“Now we’re back to a rate of growth we’ve come to expect for the Canopy group.”
The timing of sales from the company’s Tweed Farms appeared to be a factor in limiting supply in its third quarter as it worked to properly test and approve the farm’s harvest, noted Vahan Ajamian, an analyst at Beacon Securities.
Product from a record harvest at Tweed Farms was released into market after the quarter ended and it appears sales have “markedly accelerated with this additional product on hand,” Ajamian said.
He also noted a positive surprise regarding cost of sales as both revenue per gram and cost per gram were better than he expected. The average selling price was $7.36 per gram, higher than his projected $7.10 a gram. The average cost was $2.47 per gram, below his forecast of $2.75 per gram.
He projects revenue will double from the third quarter in the current quarter to $18.4 million, thanks to the influx of inventory and the addition of Mettrum sales in its results.
Earlier this month, the company rang the opening bell at the Toronto Stock Exchange to celebrate its securing of the ticker WEED. It also announced the closing of its $430 million takeover of Mettrum Health Corp., whose inventory will be included in Canopy’s stock going forward.
Canopy recently purchased the entire converted Hershey’s chocolate factory, where it had previously been leasing a portion to grow its product. Pending Health Canada approval, it plans to add 50 per cent more production space at that location.
Canopy also has its sight set on expanding internationally, using Germany, to which it is currently exporting product, as a base.
“Europe will open up country by country, and each country will have a reason they don’t have domestic supply and we’d like to be in there.”
A million-dollar day is a pretty substantial scale point. Less than two years ago we had whole quarters with $1 million in sales.