Canopy Growth Stock Still Strong Despite Quarterly Report

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Canopy Growth Stock Mends Following Quarterly Report

Despite posting higher-than-expected losses on its quarterly report, Canopy Growth Corp (NYSE:CGC) was pretty much unaffected by those numbers, with the Canadian marijuana legalization bill and subsequent correction having a far larger impact on Canopy Growth stock.

CGC stock is up today over two percent after having a pretty dismal few days that saw the company lose much of the gains earned last week. This was seen across the industry as companies fell back to earth following double-digit value jumps.

But there is an argument to be made that CGC stock’s fall was particularly harsh due to the company’s most recent financial report, which saw it register a net loss of CA$61.5 million, compared to a CA$12.0-million loss during the same period a year ago. (Source: “Canopy Growth reports quarterly loss ahead of marijuana legalization,” The Globe and Mail, June 27, 2018.)

Analysts anticipated a net loss of CA$12.8 million, making the final figures particularly jarring.

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The losses were largely spurred on by a 149% increase in overall operating expenses compared to a year ago, largely attributed to the company gearing up for Canadian marijuana legalization that will land on October 17, 2018.

“We are loaded up on the right people in the right places and it’s go time,” Canopy’s chief executive Bruce Linton said on a call with analysts on Wednesday.

Chart courtesy of StockCharts.com

CGC stock posted impressive revenue numbers, however, jumping to CA$22.8 million from CA$14.6 million during the same quarter last year, although this too fell short of analyst expectations of CA$25.05 million.

But the numbers don’t really tell the whole story, as poor as they might seem at first blush.

CGC stock is putting a lot of money into expansion and readiness for Canadian marijuana legalization. As a result, losses and increased spending are to be expected.

The company plans to have 18 retail stores ready for action come October 17, with six in Newfoundland and five or six in Manitoba and Saskatchewan.

On top of that, the company has 2.4 million square feet of production space with an inventory of 15,700 kilograms of dry cannabis, 7,000 liters of cannabis oils, and 360 kilograms of soft-gel capsules. (Source: “Canopy Growth Corporation Reports Fourth Quarter and Fiscal Year 2018 Financial Results: Driving Readiness for the Canadian Recreational Cannabis Market,” Cision, June 27, 2018.)

Canopy Growth stock also has several multi-year supply deals in place with 25,000 kilograms per year on the books to be sold.

CGC stock also posted record quarterly sales of CA$2.3 million in one of the most enticing markets in the world—Germany.

So while the numbers may not have been rosy the whole way through, they weren’t quite as bad as they seemed at first.

Not to mention that quarterly reports are, frankly, secondary to the political and stock market movement we’re seeing in the wake of the Canadian marijuana legalization date being set.

Analyst Take 

Depending on how you look at the most recent Canopy Growth stock quarterly report, you can come away with two vastly different opinions on the company.

On the one hand, you have poor numbers that didn’t meet analyst expectations.

On the other, you have a company that is poised for growth and international expansion.

How you want to read into the company’s report will have a strong bearing on how you’d want to invest in CGC stock.

Ultimately, I am still very bullish on Canopy and believe it to be one of the stronger plays in the marijuana market.

The quarterly report was not spectacular, but the company still has a lot going for it in both the short and long terms.