Cannabis Producer Canopy Growth Reports a Blowout Quarter

Canopy Growth Corporation (CGC.TO) (TWMJF) released its financial results for the second quarter of the 2017 fiscal year which ended on September 30^th. The results include the accounts of the company and its wholly‑owned subsidiaries Tweed Inc., Tweed Farms Inc., and Bedrocan Canada Inc.

Operational Highlights

• During the quarter, the total number of registered patients increased by 47% to over 24,400
• Listed common shares on the Toronto Stock Exchange
• Exported Tweed-branded medical cannabis to German patients for the first time
• Starting with Lemon Skunk, Tweed launched DNA Certified products which come with a seal of approval from the world’s most decorated cannabis breeders
• Opened a state-of-the-art , first-of-its-kind cannabis breeding facility in Canada
• Announced partnership with related-party Delivra Inc. to supply Tweed and Bedrocan Canada with cannabis-infused topical product formulations
• Closed bought deal financing that raised gross proceeds of $34.5 million
• Tweed launched three Leafs By Snoop strains in Canada
• Recent license amendments increased production capacity to over 13,500 kilograms of dried cannabis and 6,700 kilograms of cannabis oil, representing over 7 million ml of finished cannabis oil.
• The company announced an expansion strategy in partnership with related‑party, The Goldman Group
• Canopy Growth acquired Quebec -based Licensed Producer Applicant, Vert Médical Inc. (renamed Vert Cannabis Inc.), and majority ownership of Licensed Hemp producer, Groupe Hemp

Financial Highlights

• Generated $8.5 million in revenue which is a 22% increase when compared the prior period and a 245% increase when compared to the same period last year.
• Sold more than one metric ton of medical cannabis in the quarter (1,169 kilograms), representing an increase of 19% when compared the prior period and a 267% increase when compared to the same period last year.
• Harvested 1,711 kilograms during the quarter
• The average price of cannabis sold was $7.01 per gram. Year‑to‑date, the Company has sold 2,153 kilograms and kilogram equivalents at an average price of $7.05.
• The company reported a $15.8 million gross profit, or 186% of revenue. Gross margin includes the unrealized gains on changes in fair value of biological assets, a non-cash value. 
• The Adjusted Product Contribution in the second quarter of fiscal 2017 was $5.3 million, or 62% of revenue. In the comparative period last year, the Adjusted Product Contribution was $1.5 million, or 62% of revenue.
• Expenses during the quarter included initial costs of $300,000 to establish operations in Brazil as well as related legal expenses of $600,000, and $300,000 related to its uplisting to the TSX
• Sales and marketing expenses were $2.8 million, or 33% of revenue, compared to $0 .9 million or 35% of revenue, in the same period last year. Year-to-date, the sales and marketing expenses were $5.1 million or 33% of revenue, compared to $1.9 million or 45% of revenue, in the same period last year.
• Reported $5.4 million in net income in the quarter and this included a non-cash unrealized gain on changes in the fair value of biological assets of $16.1 million
• Year-to-date, the Company recorded net income of $1.5 million or $0.01 per basic and diluted share, including a non-cash unrealized gain on changes in the fair value of biological assets of $22.8 million

Liquidity Highlights

• As of September 30^th, Canopy reported to have $45.4 million in cash and cash equivalents, representing an increase of $30.0 million from March 31^st. The increase is attributable to combined net proceeds from the April 2016 and August 2016 bought deal offerings and the exercise of options and warrants together totaling $44.2 million partially offset by cash used to fund operations of $8.9 million and investments in facility enhancements totaling $8.7 million.
• Investments in facility enhancements were primarily improvements at its Smiths Falls facility including the conversion of growing rooms, in the expansion of cannabis oil extract production capacity and in information technology.
• As of September 30^th, total inventory amounted to $27.6 million and biological assets amounted to $13.7 million, together totaling $41.3 million.
• The biological assets increased due to higher yielding plants, predominantly at Tweed Farms, in the later stage of their growth cycle.  Harvested plants were added to inventories during the quarter and quantities maintained to meet the continued growth in sales expected with strain availability, and the expected growing demand for oils.

Outlook

• Canopy Growth continues to be our favorite long-term investment opportunity in the Canadian cannabis industry. Find out our investment thesis by joining Technical420.com today!

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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