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article imageCanopy Growth posts $1 billion loss in first-quarter earnings

By Karen Graham     Aug 17, 2019 in Business
In its latest quarterly results, Canopy Growth posted a $1.2 billion loss and lower than expected sales, citing the risk of “oversupply of certain oil and gel-cap formats in certain markets.”
In a conference call with investors and analysts Thursday morning, management reported net revenue for the quarter came in at $90.5 million, far below the $109 million forecast by analysts. The company burned the cash balance down $1.4 billion to $3.1 billion in the quarter.
In the loss column, Canopy joined its rivals, Tilray and Cronos Group, which recently reported wider quarterly losses. In the earnings call on Thursday, Canopy also acknowledged that although their adult-use oils and gel capsules had sold well initially, demand had been slipping of late.
“They are just not selling. We have been talking to Canopy for some time now about the issues with their oils and gel capsules. They have known for months that most of the retailers are having problems selling them,” said Mark Goliger, chief executive of National Access Cannabis, a recreational cannabis retailer with 35 stores in Alberta, Saskatchewan, and Manitoba, according to the Financial Post.
The poor sales reinforce the Health Canada numbers that still show weak sales growth in the country. Apparently, Aurora Cannabis and Aphria took market share from Canopy Growth in the quarter. The bigger concern, according to insiders, is that Canopy took a hit to both the bottom and top lines.
Canopy Growth's stock was hardly a winner this week. Its price declined nearly 15 percent from Monday to Friday's close, reports the Motley Fool.
A  recreational cannabis container from Tweed Inc. (Canopy Growth Corporation) purchased in Alberta ...
A recreational cannabis container from Tweed Inc. (Canopy Growth Corporation) purchased in Alberta 2018
CambridgeBayWeather (CC BY-SA 4.0)
Tweed-branded oils and gel capsules
Seen as safer alternatives to smoking or vaping dried cannabis flower, marijuana oils and gel capsule sales were expected to continue to grow after getting off to a strong start for the company. However, Canopy's notable drop in quarter-on-quarter sales was due in no small part to a very sharp drop in cannabis oil and soft gel sales.
The drop in sales of the Tweed-branded oils and soft gels is so bad that it has resulted in a glut of unsold inventory - raising another question for retailers - How to handle returns?
“It’s a normal course in business. We are always talking with retailers, looking at the mix of what they have and the mix of what we are preparing. That’s why we decided to take that $8 million provision,” said interim CEO and co-founder Mark Zekulin, who has led the company since former co-CEO Bruce Linton was fired in early July.
More troublesome to many analysts is the 12 percent decline in Canopy's recreational marijuana revenues in this quarter. It's the second consecutive decline in quarter-over-quarter revenue from adult-use sales. This caused an overall drop in the company's market share, dropping Canopy to second place behind Aurora Cannabis Inc.
More about canopy growth, first quarter, Earnings, oils and gels, Marijuana
 
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