Canopy Growth Corp. on Wednesday reported a net loss of $1.28 billion for its first quarter, as the cannabis producer faced lower net revenue on a quarter-over-quarter basis and took a major non-cash charge due to the extinguishment of warrants.
Despite an uptick in recreational cannabis sales, Canopy generated just $90.5 million in net revenue for its first fiscal quarter of 2020, versus $94.1 million in its previous quarter — one that analysts had already considered weak.
The results were below analyst expectations of at least $110 million in net revenue, and sent the price of Canopy’s New-York-listed shares down more 10 per cent in after-hours trading.
Canopy had already seen its stock price dip more than 20 per cent since its previous earnings report, and the subsequent ouster of founder Bruce Linton as co-CEO in early July.
The vast majority of this quarter’s loss — or $1.176 billion — was attributed to a non-cash extinguishment of warrants held by Constellation Brands, the U.S. alcohol giant that is a major investor in Canopy.
On June 27, 2019, the same day that Canopy completed a plan of arrangement giving it an option to acquire U.S.-based Acreage Holdings Inc., Canopy and Constellation restated the terms of their investor rights agreement.
The restatement, which extended the life of some warrants held by Constellation and replaced others with new securities, triggered the non-cash loss.
For the three-month period ending June 30, Canopy sold 10,549 kilograms of cannabis to medical and recreational markets, compared to 9,326 kilograms in the first three months of 2019. The bulk of those sales came from dried cannabis sold in the domestic recreational market, which yielded the company $60.8 million in revenue.
Canopy harvested 40,960 kilograms of cannabis this quarter, an 183 per cent increase from the first three months of 2019, and a number that the company said exceeded its expectations.
The company said 16 per cent of its total recreational cannabis revenue this quarter came from higher-margin pre-rolled cannabis products.
Adjusted EBITDA was a loss of $92 million, a slight improvement from the $97.7 million loss the company posted in its previous quarter. Canopy attributed some of that loss to an investment the expansion of its hemp facility in New York.
Canopy’s cash position also declined this quarter due in part due to the Acreage deal. Canopy paid a premium of $395 million to Acreage as part of the transaction and reserves the right to buy the U.S. cannabis company altogether if federal legalization takes place.
“Fiscal 2020 is going to be another exciting time for the cannabis industry as we close in on the launch of new product formats,” said interim CEO Mark Zekulin, who is leading the company until a permanent replacement is found. “Our recent harvests are proof that our focus on operational excellence is working, and we look forward to showing both our Canadian and U.S. customers what we’ve been working on behind the scenes to prepare for the next wave of products coming later this year,” he said.
Canopy posted a net loss of $670 million in its last fiscal year, a number that Constellation CEO Bill Newlands expressed his disappointment with. Canopy had also posted a writedown of $24 million in its last quarter, due to issues getting its greenhouse facilities in Aldergrove, B.C. and Mirabel, Que., up to speed.
“We believe that falling recreational revenues could damage Canopy’s relative positioning especially as Aurora’s pre-release for the June quarter suggests significant growth in the recreational market,” wrote Royal Bank of Canada analyst Douglas Miehm in a preview of Canopy’s earnings.
The company will hold a conference call for analysts and investors at 8.30 a.m. on Thursday.
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Copyright Postmedia Network Inc., 2019
