Canopy Growth Corp. reported shrinking losses in the third quarter ending Dec. 31, 2019, as both domestic and international sales increased, and the company slashed operating expenses in an effort to get closer to profit territory.
The Smiths Falls, Ont.-based licensed producer reported an adjusted EBITDA loss of $92 million, versus $156 million in the previous quarter, due largely to a vast reduction in operational expenses and corporate overhead, which plunged by 59 per cent quarter over quarter.
Shares of Canopy rose more than 14 per cent to $29.57 in morning trade.
The combination of weak sales, product returns and a high cash-burn rate over the past year has compelled cannabis companies, including Canopy, to restructure their businesses, cut unnecessary costs and improve corporate governance in a drive to achieve profitability.
Canopy’s competitors Tilray Inc. and Aurora Cannabis Inc. laid off hundreds of workers last week.
Last summer, Canopy fired its co-founder and longtime CEO Bruce Linton after consecutive quarters of disappointing results. David Klein, former chief financial officer of Constellation Brands Inc. — a major shareholder in Canopy — took over as company CEO in January.
“In Q3 we executed across Canada, in our international markets and in our strategic acquisitions to drive revenue growth,” said Klein in Friday’s earnings statement. “We have a lot of work to do. We are eager to capitalize on the opportunity to create an unassailable position through a tight focus on the consumer and on critical markets,” he added.
Canopy’s net revenue rose 13 per cent quarter-over-quarter to $123.8 million, excluding a major restructuring charge the company took in its second quarter from returned products — specifically, its line of CBD-heavy soft-gel capsules.
Canadian cannabis revenue was $83.5 million for the quarter, a nine per cent increase from the previous quarter. Much of that came from cannabis sales to other licensed producers.
Domestic recreational sales directly to consumers increased by 16 per cent due in part to 140 new cannabis retail stores becoming active in the last three months of 2019.
Canadian medical cannabis sales increased 5 per cent quarter-over-quarter.
Canopy’s acquisition of vape pen company Storz & Bickel, and skincare firm The Works brought in an additional $33.4 million in revenue for the licensed producer this quarter, up 42 per cent from last quarter.
“Sales are 15 per cent ahead of consensus and EBITDA loss is $17 million better than expected. International acquisitions helped, but certainly the domestic market improved sequentially. Better cost management is starting to show,” wrote Pablo Zuanic, a cannabis analyst with Cantor Fitzgerald.
Canopy will host an earnings call at 10a.m. Eastern Standard Time.
More to come…