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Monday, November 30, 2020

Canopy Growth Corp (NYSE:CGC) Turns in its Report Card

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One of the more important benchmark moments for the cannabis patch hit this week when Canopy Growth Corp (NYSE:CGC) announced its consolidated financial results for the second quarter fiscal 2019 ended September 30, 2018. Our sense of the numbers reveal strong growth and steady expansion. But the timing of the results were tough, coming just 18 hours after Tilray’s ugly report and disappointing conference call, which served as a stark reminder of how fragile the cannabis space may be for the bigger names given that the supposed cap of the pyramid is operating on such shaky foundations. But Canopy looks to be in much better shape.

According to its release, sales in the second quarter were in line with management’s expectations leading into the opening of the recreational cannabis market. Revenue for the second quarter fiscal 2019 was $23.3 million, representing an increase of 33% over the prior year’s quarter in which revenue was $17.6 million. As planned, the Company made only limited “test” shipments of $0.7 million into recreational channels during the second quarter to confirm supply chain systems functionality before the launch of recreational cannabis on October 17.

Canopy Growth Corp (NYSE: CGC) is one of the bigger growers in the industry. The company produces and sells medical marijuana in Canada. It offers dry cannabis and oil products primarily under the Tweed and Bedrocan brands. It also sells its products online.

According to company materials, “Tweed is the most recognized marijuana production brand in the world. It has built a large and loyal following by focusing on quality products and meaningful customer relationships. Tweed doesn’t just sell marijuana, it facilitates a conversation about a product we’ve all heard about but haven’t met intimately yet. It is approachable and friendly, yet reliable and trusted. As marijuana laws liberalize around the world, Tweed will expand its leading Canadian position around the globe.”

Also from their materials, “Bedrocan is the epitome of medical-grade cannabis. Bedrocan BV pioneered medical cannabis in Holland through decades of selection and refinement, leading to standardized, whole bud cannabis strains that patients can rely on. Bedrocan Canada supplies the same standardized strains to the Canadian market through exclusive licensing rights to the American continents, an arrangement it will also enjoy for all future genetic advancements. Due to its consistency over time, Bedrocan’s strains have been used in clinical research in seven European countries. That commitment to research didn’t stay on the east side of the Atlantic – Bedrocan Canada recently launched one of the largest clinical cannabis studies in the world, the EQUAL Study, to evaluate quality of life before and after medical cannabis use.”

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Commentary from management focused on the huge growth potential ahead as the cannabis industry becomes increasingly a global marketplace.

“With extensive investments over the past year, including most notably in the second quarter, in branding and retail development, our entrance into the retail cannabis market has been a success with our SKU assortment obtaining over 30% listings market share in multi-store physical retail store networks nationwide. With substantial product inventories on hand, new product formats coming to market as planned, a captive sales force driving increased demand through physical retail stores and increasing internal and channel efficiencies, we believe based on market conditions today that we will attain significant and sustainable market share of the Canadian recreational market,” Bruce Linton, Chairman & Co-CEO, Canopy Growth.

The chart shows a -30% drop during the past week. What’s more, the company has registered increased average transaction volume recently, with the past month seeing a bit over 120% beyond what we have been seeing over the larger time frame.

During the quarter, Canopy Growth secured capital via a strategic $5 billion investment from Fortune 500 beverage leader Constellation Brands, which closed subsequent to the quarter.

According to the company, these funds will be deployed towards the Company’s core strategic objectives of (i) intellectual property development, and (ii) replicating the Company’s Canadian platform for success across a large number of international markets. These objectives will be achieved through international acquisitions as well as continued internal investments across the globe.

Earning a current market cap value of $11.59B, CGC has a significant war chest ($659.8M) of cash on the books, which stands against about $130.6M in total current liabilities. One should also note that debt has been growing over recent quarters. CGC is pulling in trailing 12-month revenues of $88M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 63.3%. You can bet we will update this one again as new information comes into view. Sign-up for continuing coverage on shares of $CGC stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $CGC, either long or short, and we have not been compensated for this article.

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