Canopy Growth (NYSE:CGC,TSX:WEED) blamed a too-small retail sector in Ontario and an excess of soft gel inventory for its significant quarter-over-quarter drop in revenue for Q2 2020.
The firm released results for the quarter on Thursday (November 14) ahead of a steep 15.6 percent drop during the trading day to C$20.63 as of 12:50 p.m. EST in Toronto.
Net revenue fell 15 percent to C$76.6 million this quarter. The loss was attributed, in part, to a restructuring charge of C$32.7 million for returns, returns provisions and pricing allowance in relation to the company’s portfolio of oils and soft gels.
The Ontario-based cannabis producer also racked up an inventory charge of C$15.9 million due to an overflow of finished recreational cannabis stock, while net losses were at C$374.6 million.
During an earnings call with analysts and investors, Canopy Growth CEO Mark Zekulin said the lack of infrastructure in Ontario’s cannabis retail landscape contributed to the disheartening results.
“It’s been a challenging couple quarters in the cannabis sector,” Zekulin said, adding that Ontario’s failure to build a retail framework has effectively halved the market size.
Zekulin told analysts the firm is now past its inventory issues and product numbers are within “an appropriate range” moving forward.
The executive also walked back the company’s projection of achieving C$250 million in Q4 2020 with a gross margin of 20 percent, saying it was “increasingly unlikely” the milestone would be reached.
“We do not believe at this time that there will be sufficient points of retail sales in the near term to unlock the necessary Q4 demand,” said Zekulin.
During an interview with TD Ameritrade Network on Friday (November 15), Zekulin confirmed the company had overestimated the magnitude of soft gel and oil interest, saying they’d originally projected they would account for 15 percent of sales but the actual number is closer to five percent.
“One of the reasons why soft gels and oils had some challenge getting consumer resonance is nobody really thought there was an edible market because those were the only products that were available,” he said. “And now as we launch (edibles) next month, you’ll have a whole variety of products. You’ll have vape products, you’ll have beverages, you’ll have chocolates, you’ll still have soft gels.”
He justified the company’s miss, saying there was a lack of data on customer behaviour before cannabis was legalized in Canada.
When asked about an adjusted direction following the withdrawal of the firm’s previously stated revenue goal, CFO Mike Lee said current market conditions have resulted in too many variables to give accurate guidance on the coming quarters.
The company plans to transition to US generally accepted accounting principles for its earning reports moving forward, Lee said, joining fellow producer Cronos Group (NASDAQ:CRON,TSX:CRON) in doing so. By April 2020, Canopy will become a domestic issuer with the US Securities and Exchange Commission and a large accelerated filer.
When it comes to leadership, Zekulin told analysts the company still hasn’t found its next CEO after the surprising termination of co-founder and former CEO Bruce Linton. It plans to update investors by the end of the year.
The cannabis firm is projecting Ontario will begin opening 40 retail cannabis stores a month starting in January 2020 to better serve the province’s marijuana retail space.
Zekulin was one of several cannabis executives who contributed to an open letter sent to Ontario Premier Doug Ford asking the government for a more open retail space. Other firms, including Organigram Holdings (NASDAQ:OGI,TSX:OGI) and Delta 9 Cannabis (TSX:DN,OTCQX:VRNDF), have also blamed their slower growth on the lack of brick-and-mortar locations.
“The lack of a sufficient retail network and slower than expected store openings in Ontario continued to impact sales in Q4 2019 and were further exacerbated by increased industry supply,” Organigram said on Monday (November 11).
The company did see a small increase of 9 percent in sales of dried cannabis to 7,497 kilograms this quarter from 6,881 in Q1 2020. Zekulin said the company continues to reign over the recreational market in Canada and was bullish on Canopy Growth’s position to take on a considerable market share of edible products in Canada.
At the onset of product roll out, the company plans to unveil over 30 new items, with more than 20 coming up in the six to 12 months after the initial launch.
Editor’s note: This story was updated to include new comments from Canopy Growth CEO Mark Zekulin.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
As investors continue to prioritize cannabis opportunities in the US, market watchers expect mergers and acquisitions (M&A) to play a role in the future for Canadian companies.
A consolidation trend has been expected in the Canadian cannabis space for some time now based on the size of the market compared to the number of operations in the country.
BioHarvest Sciences Inc. Unveils the Unique Polyphenolic Content of Its Upcoming Olive-Based Nutraceutical
The product will include polyphenols known to have significant health benefits.
BioHarvest Sciences Inc. (CSE: BHSC) (“BioHarvest” or the “Company”) has reached an important milestone in its development program of additional Nutraceuticals. The olive-based Nutraceutical product scheduled for market availability in the second half of 2022 will contain the following unique matrix of polyphenols: hydroxytyrosol, trosol, and verbascoside. These compounds are the major polyphenols in naturally grown olives and are responsible for the high antioxidant activity of olives and olive oil. Importantly, the BioHarvest olive-based Nutraceutical product will provide all the benefits of olives and olive oil with a low calorie count per serving.
Cresco Labs (CSE:CL) (OTCQX:CRLBF) (“Cresco” or the “Company”), one of the largest vertically integrated multistate cannabis operators in the United States, announced today that it will report financial results for the fourth quarter and full year ended December 31 st , 2020 on Thursday March 25 th , 2021 before the market opens.
The Company will host a conference call and webcast to discuss its financial results and provide investors with key business highlights on Thursday March 25 th , 2021 at 8:30am Eastern Time (7:30am Central Time).
Canopy Growth to Participate in BofA Securities Virtual Consumer & Retail Technology Conference on March 11, 2021
Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) (“Canopy Growth” or “the Corporation”) announced today that EVP & CFO Mike Lee will be participating in a fireside chat at the BofA Securities Virtual Consumer & Retail Technology Conference on Thursday, March 11, 2021 at 9:30am ET .
Hill Street Beverage Company Inc. (TSXV: BEER) (“Hill Street” or the “Company”). The Company announces that further to its press release dated March 2, 2021, it has obtained TSX Venture Exchange approval to extend the closing date of its previously announced private placement of units (“Units”) until April 7, 2021. Each Unit is comprised of one (1) common share and one (1) warrant, exercisable for one common share at price of $0.11 per share, for a period of three (3) years from the date of Closing. The Company applied to extend the date of closing to allow a greater number of interested investors to participate.
For more information regarding the Company or the offering, please contact firstname.lastname@example.org, or