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Canopy Growth Corp. Surges On Earning Beat…….Now What?

Aug 10, 2020 • 5:06 PM EDT
3 MIN READ  •  By Michael Berger
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Yesterday, Canopy Growth Corporation (WEED.TO) (CGC) released first quarter financial results for the period that ended on June 30th and the market responded favorably to the performance of the business during the pandemic.

During the quarter, Canopy Growth generated $110 million of revenue, which represents a more than 20% increase over the same period last year. What we find to be significant about the growth is related to what were the drivers of it. The above-average revenue growth was driven by higher medical cannabis sales in Canada and Germany, strong Storz & Bickel (S&B) vaporizer sales, and the benefit of a full quarter of contribution from acquired businesses C3 (acquired in April 2019) and This Works (acquired in May 2019).

If we excluded the growth that was a result of the acquisitions, Canopy Growth’s revenue increased by 9% when compared to the same period last year. The growth was partially offset by a decline in Canadian recreational cannabis revenue due to restricted retail operating environment in response to the COVID pandemic.

We are impressed with the performance of the business during these challenging market conditions and favorable on how the management team modified operations to remain active during the early months of the pandemic. During the quarter, Canopy Growth recorded a more than 20% decline in total sales, goods, and administration (SG&A) expenses and we find this to be of importance. The reason for the decline was also related to the pandemic and we will monitor how the cannabis company is able to manage costs on a going-forward basis.

Although Canopy Growth reported a $128 million net loss, the loss was $66 million smaller when compared to the same period last year. The improvement was driven by higher revenue and lower SG&A expenses and we will monitor how the company is able to perform in the current quarter.

As of June 30th, Canopy Growth reported to have approx. $2 billion of cash and short-term investments. With this amount of cash on hand, the company has the strongest balance sheet when compared to the entire cannabis sector and we are favorable on this. Going forward, we expect to see the management team to use the cash to grow the business in an effective and efficient manner.

From the launch of an e-commerce platform to the cannabis 2.0 market, Canopy Growth has an attractive growth profile. The cannabis beverages that were launched under Tweed, Houseplant and DeepSpace brands, are available across Canada and we are favorable on the amount of traction these products have been generating.

As it relates to the international cannabis market, Canopy Growth has announced a major strategy shift that is focused on key markets. Germany has been a major growth driver on the international side of the business, and this is a market that we are excited about. When compared to the same quarter last year, flower sales in Germany increased by 181% due to increased supply and patient demand. We are bullish on the growth that was reported and this is a market that we are excited about over the long-term.

We believe that Canopy Growth has substantial catalysts for growth and are favorable on the leverage that it has to the cannabis 2.0 market in Canada. Over the next year, we expect to see the business penetrate new market and believe that it is one of the best positioned cannabis growth opportunities.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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