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Canopy Growth Corp., Canada’s largest cannabis producer, saw its sales slide and its losses widen in the quarter that immediately preceded the launch of the legal recreational marijuana market.
Shares in the Smiths Falls, Ont.-based grower plunged more than 10 per cent Wednesday after the company revealed a $330-million net loss on revenue of $23-million in the quarter ended Sept. 30, an 11-per-cent drop in revenue from the previous quarter.
Co-chief executive Bruce Linton said the company took a deliberately cautious approach to the legalization of recreational cannabis on Oct. 17 – a tack that likely had a negative effect on sales. Just $700,000 of the company’s quarterly revenue came from deliveries to the recreational market – to stock shelves ahead of legalization. Canopy said it prioritized wholesale shipments to markets in Alberta and Quebec, which have bricks-and-mortar retail outlets, over online-only operations such as Ontario. He said Canopy stocked retailers with mostly flower to start, before expanding to soft-gel capsules and now prerolled joints, a category that proved to be among the most popular with consumers in the early days of legalization.
The focus, Mr. Linton said, is on the long term.
“We want to be like a sustaining, winning race rather than a flash out of the gate,” he said on a call with analysts Wednesday.
Canopy is the third of the sector’s largest firms to report earnings this week, joining Aurora Cannabis Inc. and Tilray Inc. Together, the three companies – valued collectively at almost $30-billion – booked $66-million in total revenue and operating losses of $353-million.
Analysts had predicted that cannabis growers would sell more than they did in September to the recreational market, which launched two weeks after the reporting period ended. They expected Canopy to show revenue of as much as $91-million, according to a research note by Cowen Inc.
“It’s the first [time] in our history that I’m aware of where we actually had a slowdown,” Mr. Linton said, attributing the sales dip to lower medical sales in Canada and Germany. “But it was more of a distraction than a pattern.”
Canopy’s stock tumbled 10.9 per cent Wednesday in New York, falling to US$34.30 a share. Investors were dumping other pot stocks, too: Tilray fell 8.3 per cent, Aurora’s shares were down 8 per cent, and Aphria Inc. dropped 7.4 per cent
Despite supply issues plaguing the industry as a whole, Canopy is not low on product. As of Sept. 30, its inventory levels grew to 31,214 kilograms of cannabis flower, 21,499 litres of oil and 1,497 kilograms of soft-gel pills. That inventory and large production footprint may put Canopy “ahead of many other licensed producers (LPs) in its ramp and ability to supply adult-use channels,” analysts at BMO Nesbitt Burns Inc. wrote Wednesday. “We believe there is significant uncertainty for the industry’s ramp schedules.”
But accelerating for recreational sales and overseas expansion isn’t coming cheap. Canopy posted operating losses of $215-million for the quarter. It took a net write-off of $16-million related to culling plants because it didn’t have a processing licence at one of its facilities.
Canopy is aiming to capture a 30-per-cent share of Canada’s recreational market. “Now, it’s crank time,” Mr. Linton said. “And the provinces are starting to gain their momentum as well.”
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