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Canopy Growth Results Show Progress While Aurora Struggles

February 18, 2020

Both Aurora and Canopy Growth, two of the most significant players in the Canadian cannabis industry, reported financial results for the last three months of 2019 in recent days. Although the financial situation for Canada’s major players remains tenuous in general, divergent paths are beginning to emerge that may point to which companies are best equipped for the long haul.

Canopy Growth, for instance, saw a substantial spike in net revenue—a much-needed development if the company stands any chance of reaching its promised run rate of C$250 million ($189m) a quarter. Revenue rose 61% in the three months ended December 31 and totaled C$123.8 million ($93.4m), as more retail stores opened across the Canadian market, unlocking pent-up demand.

Canopy’s business-to-business recreational sales generated gross revenue of C$53.5 million ($40.4m), up from C$49.4 million ($37.3m) the previous quarter. The 8% increase was primarily attributable to a boost in demand resulting from the opening of approximately 140 new retail stores during the third quarter, as well as growth in sales of pre-rolled joints and THC-dominant dry flower. Gross revenue from the Canadian recreational business-to-consumer channel was C$15.2 million ($11.5m), with a quarter-over-quarter increase of 16% primarily attributable to same-store sales growth for Canopy-owned Tweed and Tokyo Smoke retail of 11%.

Canopy also made huge progress toward reining in the expenses that have weighed on its balance sheet over the past year. The company’s net loss, while still significant, was far less than it has been in prior quarters. It drew nearly even with revenue at C$124.2 million ($93.7m), whereas the previous quarter yielded a net loss of C$374.6 million ($282.7m) on net revenue of C$76.6 million ($57.8m). New CEO David Klein—formerly CFO at Constellation Brands—took over only three weeks before this quarter ended, but his mandate to cut costs seems to be coming along.

Canopy is still feeling the pain of the slow development and launch of Cannabis 2.0 products that it’s counting on to ignite demand, having recently delayed a wide rollout of its infused beverages. Its adjusted EBITDA for the third quarter was a loss of C$91.7 million ($69.2m), improving on a loss of C$155.8 million ($117.6m) one quarter earlier.

While things could be looking up for Canopy, Aurora continued to slide. It lost approximately 25% of its net revenue quarter-on-quarter, falling to C$56 million ($42.3m). In commentary on the financial results, Aurora management attributed the drop to the ongoing shortage of cannabis retail in key markets. While revenue fell by nearly C$20 million ($15.1m), operating losses rose 54% to C$119.6 million ($90.3m). As a result, Aurora’s negative adjusted EBITDA doubled quarter over quarter, from a loss of C$39.7 million ($30m) to a loss of C$80.2 million ($60.5m).

Aurora has undertaken cost cutting of its own in recent days as it laid off 500 staff across operations. Terry Booth, Aurora’s CEO of seven years, resigned earlier this month. Unlike Canopy, which is counting on cannabis drinks and other new products to improve performance moving forward, Aurora has stated that it does not plan to pursue the beverage segment.—Danny Sullivan

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