Cannabis-producer Canopy Growth posts even bigger loss
Expansion plans are on hold due as surplus supply but tepid demand, and a slow rollout of stores, have taken its toll
Bengaluru — On Thursday, Canopy Growth reported a wider-than-expected quarterly loss on soaring expenses and said it will not make any large investments to expand in Canada amid surplus supply and tepid demand for weed and weed products.
US-listed shares of the company were down 6.5% at $17.3 pre-market trade.
The decision to hold expansion plans follows a wave of enthusiastic spending by marijuana companies to scale up production, expand in new markets and on research after Canada’s legalisation of recreational cannabis in 2018.
However, demand has not kept up with expectations as the country struggles with a slow rollout of retail stores, among other problems.
Canada’s recent legalisation of derivative products, dubbed Cannabis 2.0, has also failed to generate much hype and estimates for growth have become more cautious.
“The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market,” CEO Mark Zekulin said.
Canopy also took a restructuring charge of C$32.7m (R365m) in the second quarter to account for returns, return provisions and price cuts for its softgel and oil products.
Suppliers such as Canopy enter into agreements with retailers and, depending on the terms of the contract, buyers can return the product if it does not meet the expected quality or pay less if potency is below agreed ranges.
Sundial Growers ran into problems earlier in August when tonnes of weed were returned by a buyer because of quality issues. In fact, Tilray’s CEO said on Tuesday that the company regularly inspects crops before buying them.
Canopy also took a C$15.9m charge related to its inventory. It harvested 40,570kg of weed in the quarter, but sold only 10,913kg and kilogram equivalents of cannabis products.
The adjusted core loss of C$155.75m was wider than analysts’ expectations of C$92.9m, as operating expenses surged 48.2%. On an adjusted basis, net loss was 96 Canadian cents per share, above analysts’ expectation of a loss of 40 Canadian cents, according to Refinitiv IBES data.
Net revenue rose more than three-fold to C$76.6m.