Canopy Growth more than doubles third-quarter revenue but profit falls

Licensed marijuana producer Canopy Growth Corp. more than doubled its third-quarter revenue compared with a year ago but fell short of analysts' expectations for even stronger sales.

The Smiths Falls, Ont.-based company reported revenue of $21.7 million for the quarter ended Dec. 31, more than double the $9.8 million earned in the last three months of 2016.

The results were driven by a significant increase in domestic sales as well as sales in the German medical market, chairman and chief executive Bruce Linton told analysts on a conference call Wednesday.

"It feels like the big rig is just starting to move along the track now," he said.

However, the market was expecting quarterly revenues of $24.2 million, according to analysts surveyed by Thomson Reuters.

The company also saw a roughly 138 per cent increase in active registered patients to 69,000, up from 29,000 a year ago. However, analysts say patient numbers can be a murky metric because medical marijuana patients may register with more than one licensed producer and as the overall number of patients grows.

The growth came as Canopy's profits attributable to the company fell to $1.6 million or a penny per diluted share, from nearly $3 million or two cents per diluted share a year ago.

Supply deal

Shares of Canada's biggest licensed producer were up four per cent to $27.74 midday Wednesday on the Toronto Stock Exchange as the company also announced it was one of six licensed producers to sign a letter of intent to supply the Quebec market.

As part of the agreement with the Société des alcools du Qué​bec, which will handle sales of recreational cannabis in the province when it is legal in Canada later this year, Canopy will provide 12,000 kilograms of cannabis annually.

Canopy said it sold 2,330 kilograms and kilogram equivalents of marijuana in the quarter at an average price of $8.30 per gram. That compared with 1,245 kilograms at $7.36 per gram a year earlier.

The higher average price stemmed from the addition of more oil products, such as softgel capsules — which have a higher margin than dried cannabis — and the higher selling price of medical cannabis in Germany.

Cannabis oil sales accounted 23 per cent of Canopy's revenue for the latest quarter, compared to 13 per cent in the same period a year ago.

Canopy's earnings before interest, tax and other items was a loss of $7.1 million, compared to a loss of $1.4 million during the same period a year ago.

That figure removes the impact of international accounting rules for the agricultural industry that requires cannabis companies to record the value of their plants as income as they grow, before the product is sold, lifting the bottom line.

Canopy's EBITDA was impacted by investments in branding and expanding its international reach and other activities during the quarter, chief financial officer Tim Saunders said.

These actions are "really necessary to strengthen the company's global leadership position, both in Canada and internationally," Saunders told analysts.

Margins slip

As well, the company's gross margins before fair value adjustments shrunk from 58 per cent of sales or $12.5 million, compared to 64 per cent of sales or $6.2 million in the fiscal third quarter a year ago.

That was in part due to operating costs associated with subsidiaries, such as its BC Tweed joint venture to develop greenhouse growing capacity in British Columbia, which are not yet cultivating or selling cannabis.

Meanwhile, Linton said Canopy has already begun collaborating on cannabis-based drinks with Constellation Brands since the Corona-beer maker signed a deal to acquire a nearly 10-per-cent stake in the licensed producer for $245 million in October.

Even though the government's proposed marijuana regulations do not allow for sales of recreational edibles, the companies are pushing ahead with the expectation that the policy will change.

"We are on to specifics of brands, flavourings, formats," Linton told analysts. "Were heading down, making sure we'll have great stuff by 2019."