Shares of Canopy Growth Corp (TO:WEED) ended lower Tuesday despite announcing second-quarter revenue that more than doubled
SmallCapPower | November 15, 2017: Canopy Growth Corporation (TSX:WEED) reported strong second-quarter results on Tuesday, with revenues more than doubling to $17.6 million as compared with $8.5 million in the same period last year. Sales of oils, including gel caps, accounted for 18% of revenue in the quarter, a 400 bps increase from prior year quarter. The company first began selling cannabis oil in the fourth quarter of fiscal 2016 under the Tweed brand. The total quantity of cannabis sold during the quarter was 2,020 kilograms at an average price of $7.99 per gram, up from 1,169 kilograms at an average price of $7.01 in the same period last year, driven mainly by an increasing mix of oil products and oil-based soft gel caps. Canopy Growth believes the sale of cannabis oils will represent a significant revenue stream going forward.
Despite this, shares of Canopy Growth Corporation eased 2% to close at $19.96 on Tuesday.
Average production cost per gram decreased by 1% to $2.73 as compared with the preceding quarter. This is one metric where Canopy Growth lags behind the other players, who are producing at average cost of $1.5 per gram.
Gross margin before accounting for biological assets and inventory came in at $10.1 million (57% of sales), as compared with $5.1 million (60% of sales) in the prior-year quarter. The lower gross margin percentage was due primarily to the impact of the write-down of hemp-based inventory due to discontinued product lines and the temporarily idling of the Mettrum Creemore site for improvements. Its bottom line worsened further, though, with the net loss totalling $1.6 million for the quarter, as compared with the net income of $5.4 million in the prior-year quarter.
Backed by the recent $245-million investment from Constellation Brands (NYSE:STZ), Canopy Growth remains focused on the expansion of its cultivation capacity, extraction platform and finished branded products programs. The relationship with Constellation to work together to develop and market regulated recreational cannabis-based beverages, when and where they are federally legal, is a critical step in the move up the value chain. Additionally, the historic cannabis supply MOU signed during the quarter with the province of New Brunswick confirms the Company’s long-held belief of investment in brands, quality and scale.
Canopy Growth’s share price has more than doubled during the past three months and currently trade at high Price to Sales of 77.84x.
Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in the company mentioned above.