Canopy Growth earnings: $617M loss in Q3, sticks to 2022 profit pledge

·4-min read

Canopy Growth (WEED.TO)(CGC) is "on a solid footing" after months of cuts that finally have the cannabis giant selling more pot than it harvests, according to the company's chief executive officer.

Speaking to analysts on a post-earnings conference call on Tuesday, David Klein stuck to his previously announced profitability target for next year. His optimism comes as Canopy reports another steep year-end loss and quarterly results that missed analyst expectations. 

"Our results are moving in the right direction, and we are confident that we can further scale our business on a path to profitability in fiscal 2022," Klein said on the call. 

Canopy reported fourth-quarter sales of $148.4 million on Tuesday, falling short of analyst expectations. The company says it was hit by a number of headwinds, including weaker sales to provinces due to COVID-19, customers choosing discount weed products, and a declining overall share of the Canadian legal market.

The Smiths Falls, Ont.-based pot giant booked a net loss of $617 million in the three months ended March 31, down substantially from a year ago when the company reported a massive $1.3 billion loss due to impairment charges related to the closure of several production facilities. Canopy posted a net loss of $829.3 million in the previous quarter. 

Net revenue for the quarter increased 38 per cent year-over-year to $148 million. However, that figure marks a decrease from the $152.2 million reported in Q3.

Canopy says it remains on track to turn a profit next year, even as the company drifted further away from profitability on a quarterly basis. It reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $94 million in its latest quarter, after booking a $68 million loss by that measure in Q3.  

Analysts polled by Bloomberg expected $153.07 million in revenue, and an adjusted EBITDA loss of $61.16 million. 

The company says it commanded a leading share of dried flower sales in Canada's recreational market during its latest quarter, a category that represents the bulk of overall legal pot sales. The company also says it led the premium flower category in Q4, a higher-margin segment where it hopes to gain a stronger foothold following its deal to acquire the Supreme Cannabis Company (FIRE.TO) announced in April.

Canopy expects to command a leading 18.1 per cent share of Canada's overall recreational market, as measured by its internal data, once deals to acquire Supreme and Ace Valley are complete.

For the full fiscal year, Canopy posted net revenue of $546.65 million, up 37 per cent year-over year. The company reported a full-year adjusted EBITDA loss of $340.31 million, down 23 per cent on an annualized basis. The company's year-end net loss amounted to $1.67 billion, up 20 per cent from fiscal 2020.

Since taking the top job at Canopy in January 2020, Klein has cut costs by shutting down cultivation facilities, reducing staff, and limiting Canopy's focus to core markets in Canada, the United States and Germany. The company says its cost-savings program is on track to deliver $150 million to $200 million in savings over the next 18 months.

"Our Canada site rationalization program that we announced in December is well underway. And these sites have ceased production," chief financial officer Mike Lee said on the call. "Our [cash] burn rate has largely been eliminated, except for certain carrying costs that we will continue to incur until these assets are divested."

Goodbye, supply glut?

For years, Canada's licensed producers have grown more pot than the country's legal market has been able to absorb. The situation has resulted in millions in write-downs on unsold products, shuttered cultivation facilities, and staff layoffs across the industry. 

Canopy says it has begun to sell 40 per cent more cannabis in Canada than it harvests, and notes inventory levels declined sequentially in Q4. 

Lee said Canopy has made "tremendous progress" in improving its supply chain to bring supply and demand into balance.

See you soon, United States

Canopy participated in this year's wave of cannabis mergers and acquisitions in Canada, snapping up Supreme and Ace Valley. Now, Klein says, the company's investment focus is squarely on the United States ahead of potential legalization. 

"I'm really bullish and have been for a while in terms of the speed that I think things are going to move," he said on Tuesday's call. "I personally believe [federal legalization] will move faster than maybe a lot of people think."

He says he sees "several paths" that would allow Canopy to fully enter the massive U.S. market through its deal to take over Acreage Holdings (ACRG-AU.CN) and its stake in TerrAscend (TER.CN).

"The next big move will be to see what senators Booker, Wyden and Schumer come out with in their bill, and to understand how passable their bill is," Klein said. 

"We want to see a proper regulatory bill and we want to see full up interstate commerce so that this business can function just like every other business in the United States."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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