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Canopy Growth Corp.’s quarterly revenue declined 15 per cent sequentially, coming in far short of analyst expectations, after the company took a $32.7-million “restructuring charge” related to returns for oil and soft gel products. The company’s adjusted EBITDA loss was $155.7-million and its net loss was $374.6-million.

Canopy reported $76.6-million in sales, including charges. That’s down from $90.48-million the previous quarter and 32 per cent below consensus expectations, according to S&P Capital Markets.

Gross margins were negative 13 per cent. Canopy attributed the poor margin performance to a $15.9-million “inventory charge” that resulted from the company's “assessment of current and forecasted ‘sell-in’ rates of certain oil and softgel products.” It also said margins were impacted by operating costs related to facilities that were not producing cannabis or were under-utilized ($10.5-million), as well as by “portfolio restructuring costs” ($9.2-million).

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"The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market," said CEO Mark Zekulin in a news release.

He added that he believed the poor market conditions are short-term, and that Canopy is the best positioned company over the long-term, given its “cash-on-hand, a world-class infrastructure, and a portfolio of intellectual property.”

Before adjustments, Canopy’s business-to-business wholesale revenues declined 15 per cent in the quarter, while recreational sales increased 24 per cent and Canadian medical sales were up 8 per cent. The biggest growth was in international medical sales, which increased 72 per cent to $18.1-million, driven largely by sales from its German subsidiary C3.

The company sold 7,497 kilos of dried cannabis in the B2B market, up 9 per cent from the preceding quarter. This was offset by an 80 per cent drop in B2B oil and gel cap sales. In the rec market, sales for dry cannabis increased 34 per cent sequentially, while oil sales remained flat.

"We took the necessary steps to address inventory levels on our oils and softgels; looking beyond this, the fundamentals are strong: our retail store sales are growing on an overall and same-store basis, our Canadian medical revenues are up, and international medical sales are growing on both an organic and inorganic basis. And, even though revenue is muted during the quarter due to the restructuring charge, actual cannabis shipments grew quarter-over-quarter, which is a great accomplishment in light of the inventory reset that's occurring at the provinces,” Mr. Zekulin said.

Canopy continues to burn through cash at an astonishing rate, spending $404.7-million in the quarter, including $228.3-million on capital expenditures, mostly on completing its manufacturing and beverage production facilities. The rest of the cash burn was most attributed to operations, as seen in the $155.7-million adjusted EBITDA loss.

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