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Report On Business Canopy Growth posts wider loss despite doubling patient base and revenue

Medical marijuana plants are pictured in this file photo. Licensed marijuana company Canopy Growth saw its patient base double in its last fiscal year to more than 58,000, though the company posted a $16.7-million net loss for the year, up from $3.5-million in 2016.

Dave Chan/The Globe and Mail

Licensed marijuana producer Canopy Growth Corp. saw its patient base double in its last fiscal year to more than 58,000 as sales increased 203 per cent, though the company posted a loss for both the year and most recent quarter as it invested in production capacity ahead of recreational legalization in Canada.

It announced a $16.7-million loss for the year, up from $3.5-million in 2016. The stock closed the day down 5.56 per cent in trading in Toronto.

Canopy, Canada's largest medical marijuana producer, operates a suite of brands that began with Tweed but has grown through acquisitions to include Bedrocan and Mettrum. "The aim is to be the best ready and the best positioned as 2018 hits," said Bruce Linton, Canopy's chairman and chief executive officer, on a conference call with analysts Tuesday morning.

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The company has been focusing on production rather than seeking profit, Mr. Linton said, in order to be prepared for a marijuana market he believes will be underserved when prohibition is lifted. This includes ramping up production capacity of its dried, oil, and capsule cannabis products for legalization in Canada – which Mr. Linton said he suspected could be earlier than anticipated to make Canada Day 2018 less marijuana-focused.

He believes it could come on April 20, or "4/20," a celebrated marijuana smokers' holiday.

While Canopy is preparing to have its current medicinal suite of products available for consumers when marijuana becomes legalized, it's developing a "properly prepared package" of products to be approved for recreational use to differentiate the two consumer markets.

The company revealed a number of growth updates this week, including an expansion of its main facilities in Smiths Falls, Ont. It said it would acquire a 100,000-square-foot facility in Fredericton for indoor production, and set in motion a previously existing agreement to build and license a 160,000-square-foot indoor facility in Edmonton.

The company also announced it received certificates of Good Manufacturing Practices from Germany's Regierungsprasidium Tubingen, an internationally recognized production quality standard, which will help with exports to Germany and other heavily regulated markets.

For 2017's fourth quarter, the company's most recent, Canopy brought in revenue of $14.7-million, a 191-per-cent increase over a year earlier. Analyst Vahan Ajamian of Beacon Securities Ltd. said in a note that the revenue number was "essentially in line" with his $15-million forecast, but below the analyst consensus of $16.4-million, noting that his estimate was the Street low.

The marijuana producer revealed a wider loss for the quarter of $21.1-million or 14 cents a share, versus a loss of $5.1-million or 5 cents the year prior.

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Expansion expenses helped drive the loss: acquisition costs in the quarter were $5.4-million, including $4.6-million related to the Mettrum acquisition, compared with no acquisition costs the year prior. Mettrum also added $1.7-million to Canopy's quarterly general and administrative expenses and $1-million to sales and marketing expenses.

Its loss last quarter before interest and tax – and adjusted to remove items including stock-based compensation, depreciation, biological asset-and-inventory accounting, and acquisition costs – grew to $5.3-million, versus $4.4-million last year.

Canopy's shares have fallen about 20 per cent since April 12 – the day before Ottawa announced pot-legalizing legislation set to take effect July 1, 2018, following a similar trend as other Canadian marijuana stocks, including Aurora Cannabis Inc. and OrganiGram Holdings Inc.

Canopy Growth was co-founded by Ottawa entrepreneurs Mr. Linton and Chuck Rifici in 2013 as Tweed Marijuana Inc. and renamed in 2015.

Canopy Growth (WEED)

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