Canopy Growth stocks plunged almost 20 percent on Friday, erasing nearly all of its recent gains after the Canadian cannabis giant reported disappointing results in its fourth-quarter earnings report.
The Smith Falls, Ontario-based cannabis producer reported a 76 percent jump in revenue for fiscal 2019, but quarterly results were less optimistic. Canopy Growth ($CGC) reported a net loss of $940 million (C$1.3 billion), much of which came from a $538 million (C$743 million) impairment charge the company had forecast in March, and an adjusted EBITDA loss of about $74 million (C$102 million). Net revenue of $78 million (C$107.9 million) also fell below expectations, driven by sliding market share in the competitive Canadian adult-use market.
On a conference call with analysts following the report, Canopy executives admitted the company lost Canadian market share due in part to inadequate supply of high potency THC products, as well as a failure to recognize surging demand for value products. The company plans to release a value brand in the coming weeks.
Canopy also withdrew previous guidance about when it might achieve profitability, given pressures from the coronavirus pandemic and ongoing corporate restructuring. Canopy CEO David Klein said the company will offer new targets during the second half of fiscal 2021.
"Expect fiscal 2021 to be a transition year as we rapidly evolve. Additionally, given the COVID-19 related uncertainties we are withdrawing our previously communicated milestones for achieving positive EBITDA and net income," Klein said.
Investors and analysts were expecting a stronger performance from Canopy Growth on the back of strong reports from competitors like Aurora Cannabis, and after Canopy's recent actions to optimize operations that sent shares soaring.
Stifel analysts wrote in a note that profitability is still likely a long way off given "uncertainties around COVID-19, necessary action to improve business momentum, and the investment necessary to drive disruptive innovation in a structurally difficult Canadian market."
But on a call with investors following the earnings report, Canopy executives made it clear the type of "disruptive innovation" Stifel's Andrew Carter mentioned is top of mind.
The company announced new strategies to leverage data, analytics, and research and development in order to win existing cannabis customers away from competitors and the illicit market, and attract new consumers. To this end, the company created several new C-suite roles. Constellation veteran Chris Edwards will assume the role of chief insights officer and oversee the development and execution of in-house consumer insights and analytics. Julian Cohen, a Constellation veteran who worked with the team that developed beverages in partnership with Canopy, has been named chief innovation officer. In that role, he will oversee research and development. Rade Kovacevic, who has filled several leadership roles at Canopy — most recently president — will assume the role of chief product officer. Klein said the company is also in search of a new chief operations officer and a chief commercial officer.
"This is not a quick transition but the beginning of a journey that will put us firmly in the ranks with the top consumer products companies in the world," Klein said on a call with analysts. "We need to continue to invest in R&D, consumer insights, and route-to-market capability while we become as efficient as we can in all other areas of the business."
Klein said the actions are part of a shift in priorities away from being the first in every market, and toward being the best in its three core markets: Canada, the U.S., and Germany.
In the past few months, Canopy Growth has taken decisive steps to cut costs and streamline operations after a challenging 2019 and amid new pressures from the coronavirus pandemic. Since January, the cannabis producer has laid off some 900 employees — 200 of which Yahoo Finance reported were temporary layoffs, related to coronavirus — and shuttered or streamlined operations in Africa, Latin America, Canada, and the U.S.
Analysts and inventors have been cautiously optimistic about the direction of the company under the leadership of the many Constellation veterans in the C-suite and on the company's board and in the wake of Constellation Brands' decision to exercise additional warrants in early May.
