Canada’s largest licensed cannabis producer seems to have no problem driving in sales, but it is still struggling to get to profit territory.
Canopy Growth Corporation (listed as WEED on the Toronto Stock Exchange), saw its revenue grow by almost 200 percent to $14.7 million in the fourth quarter of the fiscal year, fueled primarily by a surge in its patient base due to the acquisition of another licensed weed producer, Mettrum Health Corporation.
However, the company’s losses continue to grow. In 2016, Canopy posted a loss of $3.5 million — since January 2017, the company has already lost almost $17 million. As of noon today, Canopy’s stock had dropped six percent, bringing its value to $7.96 per share.
“There appears to have been a meaningful inventory change in the quarter,” wrote Beacon Securities’ analyst Vahan Ajamian, in analyzing why Canopy posted such a huge loss this quarter.
Earlier this year, Canopy developed a plan to lower the price of its “Sun-Grown” inventory from Tweed Farms starting in 2018, in an attempt to diversify pricing according to strain amongst its Tweed brands. Canopy factored this lower price into its financial calculations for this quarter, impacting its overall gross margin (the difference between revenue and cost).
It is worth noting that “Sun-Grown Morris”, a Tweed-branded strain of cannabis already sells for $6 per gram — the average selling price of weed at Canopy is $8.03 per gram.
Canopy owns a slew of weed brands, including Tweed, Bedrocan and the recently-acquired Mettrum Health Corporation. The company’s rapid expansion, including the development of cannabis markets abroad under the Spectrum brand is part of CEO Bruce Linton’s mandate to become the dominant producer of different strains of weed, ahead of Canada’s nationwide legalization of marijuana.
In its fourth quarter report, Canopy announced an expansion of one of its facilities in Bowmanville, Ontario, claiming that it would add “200 percent more capacity”. It also just launched a high-tech cannabis oil extraction system that would be capable of producing as much oil in one month, as the overall amount of oil it has produced since November 2015.
Scaling up production is a costly venture, and although Canopy’s patient base has doubled to almost 58,000, bringing in a significant amount of revenue, the company is expected to continue charting losses over the next few quarters, at least until recreational demand for legal weed sets in.
Weed investors seem to be treading cautiously of late, aware they are on unchartered territory. Canopy’s stock has dropped 20 percent since mid-April when the Liberal government announced weed would be legal in Canada come July 2018.