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Cannabis Canopy Growth beats earnings estimates on soaring revenue in first quarter since legalization

Section grower Corey Evans walks between flowering marijuana plants at the Canopy Growth Corp. facility in Smiths Falls, Ont, on Jan. 4, 2018.

Chris Wattie/Reuters

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Canopy Growth Corp., Canada’s largest cannabis company, saw revenues soar in the first quarter of legal recreational marijuana, beating analyst estimates and shrugging off concerns about a slow start to the new market. Net income was also up, even though the company continues to lose money from its marijuana operations.

The grower, based in Smiths Falls, Ont., reported $83-million in revenue, an increase of 256 per cent over the previous quarter, selling 10,102 kilograms of cannabis or its oil equivalent in the three months leading up to Dec. 31. After a surprise net loss of $330-million in the last quarter, the company shifted to profitability, posting a net income of $74.8-million or $0.22 a share, despite a loss from operations of $157-million. This change was “driven principally by fair-value changes on financial liabilities, more than offsetting the loss from operations,” the company said in third-quarter filings released late Thursday evening.

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Early data suggests that recreational sales across the country have been sluggish, due to a combination of logistical problems, product shortages and the delayed rollout of retail stores. There are still no licensed bricks-and-mortar cannabis stores in Ontario, and fewer than 20 legal dispensaries in Quebec and British Columbia combined.

However, Canopy, with a market capitalization of $20-billion, appears to have captured a significant portion of the legal recreational market that does exist. The firm reported selling 8,288 kilograms and kilogram equivalents into the market, accounting for 71 per cent of the company’s revenues. The remainder came mostly from the medical market, where sales declined slightly quarter to quarter, “due in part to repositioning to a more limited medical [brand] … and to available competing offerings through the newly legal recreation market in Canada,” the company said.

Canopy’s early recreational focus contrasts with competitor Aurora Cannabis Inc., which reported results on Monday. Of Aurora’s $54.2 million in sales, only 40 per cent came from the recreational market, with most of the rest coming from the medical market.

Both companies are reporting declines in sales prices as they transition from a direct-to-consumer medical market into a recreational market, with provincial middlemen and increased competition. Canopy’s average selling price per gram, net of excise tax, was $7.33 compared with $9.87 in the previous quarter. This was due to “a higher proportion of [business-to-business] recreational sales to provincial Crown corporations, slightly offset by higher average pricing in the retail channel to achieve an overall recreation average price of $6.96,” the company said.

While Canopy’s earnings shed light on the potential of the Canadian market, the company is already looking to U.S. and international markets, supported by a $5-billion cash infusion from the alcohol giant Constellation Brands Inc.

International sales accounted for 16 per cent of Canopy’s medical revenues in the quarter. A particular focus was Germany, where the company sold 204 kilograms at an average price of $13.28 per gram.

Although Canopy has not begun selling into the U.S., where cannabis remains illegal at the federal level, it is beginning to position itself to enter the market. After the passage of legislation in the U.S. removing hemp-derived cannabidiol from the Controlled Substances Act in December, Canopy announced that it would invest between US$100-million and US$150-million in an Hemp Industrial Park in the state of New York. In the fall, Canopy acquired a hemp-focused research firm in Colorado called Ebbu Inc. for more than $400-million in stock and cash.

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