CGC| Q2 2020 Earnings
Yesterday, Canopy Growth (CGC) reported financial results for the first quarter fiscal 2021 ended June 30, 2020. CGC reported net revenue of C$110M, a 22% YoY increase, vs. FactSet Consensus C$98.6M. Losses slightly improved against estimates, with a net loss for Q1 FY21 at -C$108.5M vs. FactSet Consensus -C$144.4M and EPS at -C$0.30 vs. FactSet Consensus -C$0.41. The topline growth was spurred by medical marijuana sales in Canada and Germany, strong Storz & Bickel vaporizer sales, and the revenue contribution by recent acquisitions. Canadian recreational sales declined 11% YoY. Adjusted gross margin contracted 1300 bps to 7%, due to lower production output, manufacturing variances, and inventory adjustments. SG&A expenses came under control with a decline of 23% YoY.
CFO Mike Lee said, “Following our previously announced restructuring actions, we have substantially reduced our expense and cash burn in this quarter in addition to reducing headcount by over 18% since beginning of this calendar year.”
In optimistic news for Constellation Brands (STZ) and the cannabis-infused beverage market at large, CGC’s new portfolio of Cannabis 2.0 products accounted for 13% of total Canada B2B sales in Q1 FY21. Four Ready-to- Drink ("RTD") cannabis beverages under Tweed, Houseplant and DeepSpace brands are available nation-wide in the Canadian recreational market – over 1.2 million beverage units have been shipped since late March 2020.
June 1, 2020, we moved CGC on from our Best Idea Short-list onto the Short Bias bench as management’s strategy is focusing on cost reduction and cash preservation under former Constellation CFO, CEO David Klein. Restructuring charges, inventory write-downs, and goodwill write-offs are said to be behind the company. Expectations have also been significantly slashed, and the company removed guidance that they would be EBITDA positive in 2020.
The stock climbed 7.8% yesterday off smaller-than-expected losses.
Cannabis users are concerned about spreading COVID
In a survey conducted by CivicScience, cannabis users were found to be more concerned about spreading the coronavirus than their non-using counterparts. 42% of cannabis users responded that they were most concerned about the spreading the virus to others, while only 26% on non-users ranked that as their highest concern.
The survey also found that roughly 40% of respondents who say they have been spending “a lot more” money on healthy food categorize themselves as cannabis users.
Ontario private retailers see sales drop after delivery cancelled
In interviews with Canada’s CBC, private cannabis retailer owners describe the immediate sales decline following the end of an emergency order which allowed legal cannabis delivery/pickup. Harris Stoker, VP of Donnelly Group, said on their retail unit in Ottawa that delivery made up 24% of sales at the height of the pandemic and roughly 18% even when retailers reopened for on-premise shopping. Stoker noted that sales dropped immediately once delivery was cancelled by the government. In another location, Mimi Lam, CEO of Superette, stated that their business also declined with the loss of delivery. Lam added that the company had to layoff six employees hired for delivery with the cancellation.
According to estimates from the Ontario Chamber of Commerce, the Canadian province could lose out on C$180M in economic activity if cannabis retailers are not allowed to continue providing delivery/ pickup services. The economic activity loss rises to C$1B if the 450 private retail outlets which are ready to open, but whose license applications are pending provincial regulatory approval, are included. The emergency order, which temporarily permitted legal cannabis delivery/pickup amid the pandemic, expired at the end of July.
