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Feb 15, 2019

Canopy gains as revenue offsets drop in production, margins

Canopy's Bruce Linton explains what's behind the ballooning expenses


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Canopy Growth Corp. (WEED.TO) shares gained 3.4 per cent in pre-market trading in New York after the cannabis producer reported stronger-than-expected revenue for the quarter ended Dec. 31.

However, production in the quarter fell significantly and costs climbed 15 per cent over the prior quarter to levels “meaningfully higher” than the company’s peers, according to Cowen & Co. analyst Vivien Azer.

Key Insights

Canopy reported net revenue of $83 million, up 282 per cent from a year earlier and ahead of the consensus estimate of $78.7 million.

This was a “relief given the meaningful miss last quarter,” when Canopy reported its first sequential revenue decline in at least three years, Azer said.

Adjusted loss before interest, taxes, depreciation and amortization was $75.1 million, wider than the $45 million loss analysts had expected Adjusted gross margin fell to 22 per cent from 55 per cent a year earlier due to higher costs related to cultivation subsidiaries that aren’t fully commissioned, the development of edible and beverage products which can’t be sold until later this year and lower average prices for recreational pot versus medical pot.

Average selling price per gram in the quarter was $7.33, down from $8.30 a year ago Despite the lower-than-expected gross margin and wider-than-expected loss, Canopy appears to have outsold all its competitors.

Eight Capital analyst Graeme Kreindler estimated that Canopy captured 40 per cent of the Canadian rec market, while BMO analyst Tamy Chen estimated that it captured 30 per cent of the market Canopy harvested 7,556 kilograms of cannabis during the fiscal third quarter, down significantly from the approximately 15,000 kilograms harvested during the second quarter and also below the total volume sold of 10,102 kilograms

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.