Shares of Canopy Growth plunged about 15 percent on Thursday, in the aftermath of a dismal first quarter earnings report.

The biggest cannabis company in the world reported losses of $2.78 (C$3.70) per share ー or about $960 million (C$1.28 billion) ー on revenue of $67.95 million (C$90.5 million), although about $886 million (C$1.2 billion) of the massive losses were actually an intentional accounting maneuver by Canopy's largest shareholder, Constellation ($STZ), which postponed exercising warrants to buy more shares.

Sticker shock aside, the cannabis company still reported disappointing revenue and adjusted EBITDA to the tune of a $69 million (C$92 million) in losses. On a Thursday morning conference call with investors, Canopy executives said weak cannabis oil and soft gel demand was partially to blame for slowing domestic sales, as consumers instead opted to buy lower-priced cannabis flower products. Having overestimated demand for those products, Canopy ($CGC) compensated its wholesale customers about $6 million (C$8 million).

Executives also admitted the company had lost some of the early mover advantage it had at the start of legalization, as competitors bring their own operations up to speed.

"Canopy had incredible success coming out of the gate in October," CEO Mark Zekulin said. "But what's happened in eight months, competitors have begun to ramp up their own supply they are able to increase revenue from a lower base."

Canaccord Genuity analyst Matt Bottomley noted that Canopy may have been eclipsed by rival Aurora Cannabis ($ACB) in terms of market share.

But all is not lost for the cannabis giant. The company is quickly getting its factories and manufacturing facilities online, which should help with underuse expenses that cost the company about $12.15 million (C$16.2 million) this quarter. Plus, the company is gearing up to bring new form factors to market, like cannabis-infused beverages, for Canada's second wave of cannabis legalization this fall.

"From the beginning our company has had different aspirations. We don't think success should be judged by selling dry flower," Canopy CFO Mike Lee said, adding that true opportunity will be driven by the company's moves into consumer packaged goods and the medical space.

Analysts also pointed out that the company's strong harvest and plans to bring CBD products to the U.S. market by the end of fiscal 2020 were bright spots on the report.

The Constellation Brands-backed company has invested heavily into cannabis beverages ー like the company's 197,000-square-foot bottling facility in Smith Falls, Ontario ー and executives say the idea has been well-received by cannabis boards across Canada, who believe new form factors could be key in driving consumers to the legitimate cannabis market from the illicit one.

In spite of Canopy's losses, executives remain confident the company can recover. Zekulin said he expects the firm will hit a revenue target of about $750 million (C$1 billion) by the end of fiscal 2020, and will show gross margins surpassing 40 percent. Margins in this latest quarter shrunk to 15 percent, down 28 percent from the year-ago quarter.

This latest financial report comes under the shadow of former CEO Bruce Linton's dismissal. The high profile CEO was fired after Constellation CEO and President Bill Newlands expressed disappointment in Canopy's earnings last quarter.

On the Thursday morning call with analysts, Zekulin announced that the search for Linton's (and his own) replacement was underway, and that a recruiter had already identified "several exceptional candidates." A full transition is expected within the next several months.

In spite of Canopy's recent ups and downs, executives of the cannabis giant and of Constellation expressed their commitment to the April agreement they struck with U.S.-focused multistate operator Acreage Holdings.

"With the combined strengths Constellation Brands, Canopy Growth and Acreage Holdings bring to the table, no team is better positioned to win in the U.S. market when cannabis becomes federally permissible," Constellations' Newlands said in a statement for Acreage's recent earnings.

Once a suitable triggering event occurs, the $3.4 billion deal is still expected to move forward, solidifying Canopy's grip on U.S. cannabis.

Share:
More In Business
Michigan Judge Sentences Walmart Shoplifters to Wash Parking Lot Cars
A Michigan judge is putting sponges in the hands of shoplifters and ordering them to wash cars in a Walmart parking lot when spring weather arrives. Genesee County Judge Jeffrey Clothier hopes the unusual form of community service discourages people from stealing from Walmart. The judge also wants to reward shoppers with free car washes. Clothier says he began ordering “Walmart wash” sentences this week for shoplifting at the store in Grand Blanc Township. He believes 75 to 100 people eventually will be ordered to wash cars this spring. Clothier says he will be washing cars alongside them when the time comes.
State Department Halts Plan to buy $400M of Armored Tesla Vehicles
The State Department had been in talks with Elon Musk’s Tesla company to buy armored electric vehicles, but the plans have been put on hold by the Trump administration after reports emerged about a potential $400 million purchase. A State Department spokesperson said the electric car company owned by Musk was the only one that expressed interest back in May 2024. The deal with Tesla was only in its planning phases but it was forecast to be the largest contract of the year. It shows how some of his wealth has come and was still expected to come from taxpayers.
Goodyear Blimp at 100: ‘Floating Piece of Americana’ Still Thriving
At 100 years old, the Goodyear Blimp is an ageless star in the sky. The 246-foot-long airship will be in the background of the Daytona 500 — flying roughly 1,500 feet above Daytona International Speedway, actually — to celebrate its greatest anniversary tour. Even though remote camera technologies are improving regularly and changing the landscape of aerial footage, the blimp continues to carve out a niche. At Daytona, with the usual 40-car field racing around a 2½-mile superspeedway, views from the blimp aptly provide the scope of the event.
Is U.S. Restaurants’ Breakfast Boom Contributing to High Egg Prices?
It’s a chicken-and-egg problem: Restaurants are struggling with record-high U.S. egg prices, but their omelets, scrambles and huevos rancheros may be part of the problem. Breakfast is booming at U.S. eateries. First Watch, a restaurant chain that serves breakfast, brunch and lunch, nearly quadrupled its locations over the past decade to 570. Fast-food chains like Starbucks and Wendy's added more egg-filled breakfast items. In normal times, egg producers could meet the demand. But a bird flu outbreak that has forced them to slaughter their flocks is making supplies scarcer and pushing up prices. Some restaurants like Waffle House have added a surcharge to offset their costs.
Load More