x min read

A Close Look At Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) Q3 Results

A Close Look At Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) Q3 Results
Written by
Alex Carlson
Published on
February 15, 2017
Copy URL
Share on LinkedIn
Share on Reddit
Share on Twitter/X
Share on Facebook

Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) closed down 8% in Toronto after reporting Q3 results. This was due to investors booking some profits and revenues coming in slightly below expectations; however, this was due to supply not being able to keep up with demand. Due to a lack of inventory of some products, Canopy didn't push as hard as it normally would in acquiring new patients and instead opted to cater to its existing customer base. As we take a closer look, any pullback in Canopy's share price represents a dip buying opportunity.Canopy posted revenues of C$9.8 million in the third quarter, a 15% increase over second quarter fiscal year 2017 and a 180% increase over the prior year period. As we said, revenue growth was limited by the available product mix for sale. Supply was further limited in the quarter by the Company's procedures to fully test the record harvest and approve the extensive product released for sale subsequent to quarter end. Canopy ended 2016 with over 29,000 registered patients compared to 8,000 at the end of 2015. Net income of C$3 million compared to a net loss of C$3.3 million in the prior year.Revenue year-to-date in fiscal 2017 totaled C$25.2 million, an increase of 230% over the prior year period when revenue was C$7.7 million. During the third quarter fiscal 2017, Canopy Growth sold 1,245 kilograms and kilogram equivalents at an average price of C$7.36 per gram, up from 462 kilograms at an average price of C$7.34 per gram during the prior year period. Year‑to‑date, the Company has sold 3,399 kilograms and kilogram equivalents at an average price of C$7.12 per gram compared to 996 kilograms at an average price of C$7.49 per gram in same period last year.We like that Canopy was able to achieve an average price per gram of C$7.36 per gram. Prices are staying high as many were concerned that a flood of new product would depress market prices for the licensed producers. Going forward, Canopy will benefit as new products hit the market with much higher THC levels and which will command higher price points. As of today (February 15), Canopy is selling five dry cannabis and five oils at Tweed; two dry cannabis and two oils at Mettrum; and five dry cannabis and five oils at Bedrocan.The key point for investors to remember is that the Q3 results were from 45 days ago. A lot has happened since then. The numbers do not include the Mettrum acquisition at all. When Mettrum is taken into account, the combined company has roughly 50,000 registered patients. Furthermore, on the first day after the Mettrum acquisition closed, Canopy did C$1 million in sales on February 1. Now granted every day will not be like this, but it shows the potential for the company to ramp up. Chairman and CEO Bruce Linton said:

"The successful late-quarter harvest of the Tweed Farms facility running at full capacity has begun to ease supply constraints while at the same time we have introduced a new diversity of product into our online store under the Tweed, Leafs By Snoop and DNA Genetics banners, driving strong sales this month. The recent release of our first wave of new genetics and Tweed Farms product resulted in one million dollars of store sales in a single day, on February 1. That is a major milestone for Canopy. Two years ago, we had our first million dollar quarter, a year ago we had our first million dollar month, and now we have had our first million dollar day. It's definitely trending well."

Lastly, we expect 2017 to be a big year for Canopy in terms of M&A. Linton said on the conference call:

"When I start looking at our handful of locations, it doesn't take too much to see several million square feet of production at the current campuses. And so there's a little bit more campus acquisition because from a shipping perspective if we have geographic this per city you can knock down shipping costs and so there's a bit of that. But you know we look at everything all day. We have two guys do nothing, but look at M&A and its vertically integrated M&A now, it's we're looking at devices, we're looking at locations, we're looking at you know all fronts."

Currently trading with a market cap of C$1.9 billion, Canopy finished 2016 with C$92.5 million in cash and C$55.9 million in inventory. Going forward, there are a number of catalysts to keep Canopy's share price climbing. This includes March numbers that include Mettrum, federal recreational marijuana legislation in Canada (spring time), German cannabis market opening up, and gel caps. Gel caps could be a big revenue generator for Canopy. As Linton said on the conference call:

"I think you'll find the gel caps are just going to be a very easy way, because you get exactly the same milligrams per milliliter, it will be very uniform, and when our reps go see doctors it's a hell of a lot easier to convince a physician that this looks like medicine, when it looks like medicine."

We will be updating our subscribers as soon as we know more. For the latest updates on WEED/TWMJF, sign up below!

Disclosure: We have no position in WEED/TWMJF and have not been compensated for this article.

Discover Hidden Gems

Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.