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Canopy Growth Looks Ahead As Financial Position Stabilizes

February 9, 2021

Smiths Falls, Ontario-based Canopy Growth reported earnings this morning for the three months through December, during which time revenue hit a new high for the Canadian cannabis giant. Net revenue for the company’s fiscal third quarter 2021 reached C$152.5 million ($119.5m), up 13% from C$135 million ($105.8m) the quarter prior. Net revenue from core cannabis sales totaled C$99 million ($77.6m), driven by an increase both in the Canadian recreational market and in supplying medical markets internationally.

“We delivered another quarter of record net revenue, with growth across all our businesses, led by improved commercial and supply chain execution,” said CEO David Klein. “We are building a track record of winning in our core markets, while also accelerating our U.S. growth strategy with the momentum building behind the promising cannabis reform in the U.S.”

Klein appears to be succeeding at imposing the fiscal prudence that has been a goal of his since he moved from CFO of Constellation Brands to become Canopy’s CEO, despite a number of one-off charges in the most recent quarter that impacted the company’s results. Due to its decision in December to close several cultivation facilities, the company logged a massive, on-paper loss of C$829 million ($649.7m). It was driven by impairment and restructuring charges of C$416 million ($326m) related to the closures, 15% of which was a cash charge. Another C$291 million ($228.1m) came from fair value changes related to its stock price.

By other metrics, though, Canopy’s footing was much improved. Its adjusted EBITDA was a loss of C$68.4 million ($53.6m), shrinking 20% from the quarter before. Similarly, its free cash flow went from negative C$190.4 million ($149.2m) to C$135.4 million ($106.1m), improving nearly 30%.

With that brighter outlook, Canopy outlined some medium-term financial milestones it’s working toward. It hopes to achieve a net revenue compound annual growth rate between 40%-50% from fiscal year 2022 to fiscal year 2024, a positive adjusted EBITDA during the second half of fiscal 2022 (fall of calendar 2021), and positive operating cash flow for all of fiscal 2023. It expects these gains to be driven by overall growth of the Canadian market as well as growth and market share gains of its product portfolio, along with the growth of its U.S. CBD business and cost saving measures. A major possibility that Canopy left unstated is, of course, federal legalization in the U.S.

“These cost savings, along with our top-line growth and continued cost discipline, puts Canopy firmly on a path to achieve profitability during Fiscal 2022, with further improvement anticipated beyond,” said CFO Mike Lee.—Danny Sullivan

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