How Canopy Growth’s Sales in Canada Surprised Investors

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When Canopy Growth Corp. (NYSE: CGC) reported third-quarter fiscal 2019 results after markets closed Thursday, the marijuana grower and distributor posted earnings per share of C$0.22 (about US$0.17) on revenues of C$83 million (about US$62.5 million). In the same period a year ago, the company reported EPS of C$0.01 on revenue of C$21.7 million. Analysts had estimated a net loss of C$0.18 (US$0.14) on sales of C$84.98 million (US$63.97 million). The Canadian company is also listed on the Toronto Stock Exchange under the ticker symbol WEED.

Adjusted EBITDA resulted in a net loss per share of C$0.38, primarily due to C$64 million in share-based compensation expense and a fair value change related biological assets and inventory of C$28 million. Quarterly adjusted EBITDA net loss totaled C$75.1 million.

Net income jumped from C$11 million in the year-ago quarter to C$74.9 million this year.

Bruce Linton, Canopy Growth’s board chair and co-CEO, commented:

The Canadian recreational cannabis market will be dominated in the long term by businesses delivering excellent products and consumer experiences. Sales from the first wave of products and retail environments launched in the third quarter demonstrate that we are capturing consumers’ attention. We have developed an unprecedented and unparalleled fully integrated platform at scale and will continue to expand by making strategic production investments in regions with federally permissible paths to market for our cannabis and hemp offerings. We believe this strategy will develop a significant and sustained return on invested capital over the long-term.

In the third quarter, Canopy Growth sold 7,381 kilograms (kg) of recreational cannabis to its Canadian retail customers and 906 kg direct to Canadian consumers. Medical cannabis sales dipped 29% from 2,254 kg a year ago to 1,611 kg. International sales of medical cannabis rose 168% from 76 kg to 204 kg.

Sales to both the Canadian recreational market accounted for C$71.6 million in third-quarter revenue, and medical sales in Canada and international totaled C$18.6 million. Excise taxes totaled C$14.7 million.

Canopy Growth’s huge increase in sales is due to the mid-October beginning of recreational sales in Canada. The company’s sales of medical cannabis to Germany also have just gotten started. Analysts are estimating a fourth-quarter net loss of C$0.14 per share and revenues of C$119.27 million.

Investors pushed the share price up 5.5% in Friday’s premarket session, to $48.70 in a 52-week range of $18.93 to $59.25. The 12-month consensus price target on the stock is C$68.28 (about US$51.40).

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