Canopy Lost a Pile of Money in Its Marijuana Business. It’s Still Upbeat.
Closing the books on a humbling fiscal year, Canopy Growth, the cannabis industry leader, disclosed a loss of 1.3 billion Canadian dollars, but promises better times ahead.
Much of the red ink came from C$750 million (US$545 million) in noncash write-downs on spendthrift projects. “We are building what we believe is the best cannabis company in the world,” said chief executive David Klein, in the Friday morning announcement. In early trading on the New York Stock Exchange, Canopy stock (ticker: CGC) was off 17.8% to US$17.86. Like most of Canada’s unprofitable cannabis companies, Canopy stock is far below a 2019 peak of US$50. Canopy’s free-spending founder, Bruce Linton, was ousted last July by the company’s controlling stockholder, Constellation Brands
(STZ), which sells Corona and Modelo beers.
In its fiscal year ended March, Canopy had revenue of C$399 million, some 76% above the prior fiscal year. Its huge loss mainly consisted of impairment charges on ambitious acquisitions and production facilities that Llnton had undertaken with Constellation’s backing. Before interest, taxes and those noncash charges, the operating loss for the March fiscal year was only C$44
But it was a disastrous year for what investors had hoped would be a high-margin growth industry. Including all the fiscal year’s capital spending and acquisitions, Canopy’s free cash flow was a negative C$1.5 billion.
See our cover story on Canadian Pot: Marijuana Stocks Could Be a Buzzkill
While the most popular pot stocks have been those of Canadian producers like Canopy and Tilray (TLRY), it is American operators that have been able to show positive cash flow. Florida’s Trulieve Cannabis (TRUL.Canada) has reported fat profits. Thursday night, Cresco Labs (CL.Canada) reported 60% sequential sales growth in its March quarter, while the smaller New York-based TerrAscend (TER.Canada) had $5 million in cash profits on its $35 million in March quarter sales.
As Klein and his new team work to rightsize Canopy’s operations, it’s clear that demand for cannabis in Canada isn’t what pot promoters hoped. In the March quarter itself, Canopy’s sales fell 13% from December’s level, to C$108 million. Putting aside write-offs and noncash charges, the quarter’s loss was C$102 million, but negative free cash flow was C$305 million.
The quarter’s sales were a big miss relative to the expectations of analysts like Graeme Kreindler, of Toronto’s Eight Capital, falling 17% below his forecast. In a Friday note, Kreindler observed that Canopy’s overhead spending rose sequentially in the quarter by 15%.
Chief executive Klein reined in expectations for the near future, withdrawing the company’s financial forecasts as Canopy continues restructuring and Canada recovers from the Covid-19 outbreak. Calling the year that ends next March a “transition” period, he vowed to focus on Canopy’s best chances for profit in Canada, the U.S. and Germany.