Marijuana investors have been looking forward to this moment for a long time, as major companies in the cannabis industry finally tell them how one of the key events in the emerging industry has affected their businesses. In particular, Canopy Growth (NYSE: CGC) has received much attention from Constellation Brands for its sensational capacity-building efforts and its large partnership with beer and spirits giants . .
In the third-quarter financial report on Thursday, Canopy investors were optimistic about how the company would evolve to introduce cannabis for recreational use in Canada. Canopy's numbers were impressive, but even more encouraging was the management's discussion of the company's strategic intentions. Shareholders are excited about the news and there is a lot of potential for further growth in the future of Canopy.
Canopy Growth A Big Lift
Canopy Growth's third quarter fiscal results gave investors the most they were looking for. Non-excise revenue was $ 83 million ($ 62.5 million), up 282% from the year-ago quarter and well above the $ 23.2 million Canopy brought three months ago. Net income increased to $ 74.9 million, resulting in earnings per share of $ 0.22, well above expectations, with losses of $ 0.17 per share.
Many of Canopy's basic business figures showed amazing growth. The company quadrupled its sales volume for the quarter and sold more than 10,100 kilograms of cannabis compared to 2,330 in the previous year. At the same time, Canopy was able to increase its prices for some of its sales categories, with the average selling price for medicinal marijuana products in Canada rising 19% to $ 9.77 per gram. Similar success was achieved internationally, with prices rising 5% to $ 13.28 per gram. As expected, prices for recreational cannabis were more competitive and selling prices of $ 6.96 per gram were among the corresponding medicinal marijuana products. As a result, Canopy's average average selling price per gram fell by 12%, but given the change in the sales mix for the use of leisure products, the company was not dissatisfied with this result.
Cannabis-derived oils remained an important focus for Canopy. The company reported that 33% of its product sales came from oils, with pioneering softgel capsule products doing quite well.
One thing Canopy investors need to understand, however, is that much of the company's performance is due to adjustments related to changes in the value of its outstanding financial obligations. In particular, as the fair value of senior convertible bonds and other financial assets declined over the last valuation period, Canopy reported an upward revision of the profit and loss account of over $ 220 million. Without these adjustments, Canopy would have suffered significant losses as spending increased dramatically during the reporting period. Total operating costs nearly quadrupled year-on-year as sales and marketing, R & D and overheads increased sharply. The expenses for share-based payments were also much higher.
Co-CEO Bruce Linton has the long haul in mind. "Our successful first full quarter of recovery sales in Canada," said Linton, "reinforces our long-standing strategy of making meaningful investments early on to gain market share." The CEO pointed out that with its first product wave in Canada, the company "attracts consumer attention" to meet the demand for leisure activities.
Can Canopy continue to dominate?
Canopy has much more ambitious plans for the future. The legalization of hemp will play a key role, and Linton expects Canopy to "continue to grow through strategic manufacturing investments in regions with nationwide permissible market paths for our cannabis and hemp supply."
Other strategic moves include:
- new supply agreements with several companies to produce larger quantities of cannabis oil
- by adding the Tokyo Smoke distribution channel to complement the existing Tweed brand
- and finalizing the commissioning of the most important Under-cultivation facilities under development
- Exploring intellectual property opportunities related to innovative growth techniques
Canopy in particular remains in an excellent position to consider massive investment in its business for the foreseeable future. Thanks to the large investment made by Constellation Brands, Canopy has over $ 4.1 billion in cash available for potential spending. This puts the marijuana company in an excellent position to choose from the investment opportunities available in the industry, without fear of being outdone by less well-capitalized competitors.
Canopy investors were pleased with the report, bringing the stock price up 5% early Friday after the announcement. With so many opportunities for wealth, it's not surprising that shareholders are more excited than ever about the potential of Canopy Growth until 2019.
Dan Caplinger has no position in any of the above stocks. The Motley Fool has no position in any of these stocks. The Motley Fool has a disclosure policy.