Canopy Growth Shares Are Trading Higher Today, Analysts Tell Us Why

Canopy Growth Corporation WEED CGC reported its financial results Wednesday for the third quarter fiscal 2022 ended December 31, 2021, revealing a decline of 8% sequentially in net revenue to CA$141 million (US$111.12 million).

Cantor Fitzgerald’s analyst Pablo Zuanic said sales were in line with his estimate.

However, global cannabis revenue came in at CA$83 million, well below the analyst’s estimate of $CA91 million, while consumer products sales reached CA$58 million, beating estimates of CA$50 million.

Lisa  K. Lewandowski, BofA Securities’ research analyst, said in her note that net sales were “driven by stronger growth from “other consumer products” including Storz & Bickel vaporizers and BioSteel beverages partly offset by lower sales from Canadian adult use.”

The Canadian cannabis giant disclosed that recreational B2B cannabis sales continue to decline, dropping 21% in the third quarter to CA$33 million.

Lewandowski said that the company “struggles to provide flower products with in-demand attributes and continued price compress.”

Zuanic noted that Canopy is stabilizing its market share by launching new SKUs across formats, focusing more on the mainstream and premium segments.

“However, with value flower accounting for 2/3 of the company’s flower portfolio (Hifyre), we assume the company will still need to defend that part of the business,” Zuanic said.

In the meantime, adjusted gross margins of 13% were “in part due to ongoing price pressures and loss of operating leverage,” Zuanic added.

“Cash burn remains an issue, with 9-month FCF of -$440Mn, the company is now for the first time in a net debt position,” Zuanic said. “The consumer unit was strong” during the quarter. 

 With the “festive season and less supply chain disruption,” the company posted sales of CA$25 million vs. CA$14 million in the prior period.

In addition, BioSteel sales continued to expand the nationwide distribution, with purchase more than doubling to CA$17 million.

Lewandowski noted that growth in consumer products revenue was led by a 130% increase from BioSteel.

“We maintain our Underperform rating given our cautious NT outlook and limited visibility toward profitability,” Lewandowski concluded.

CGC Price Action

Canopy Growth’s shares traded 11.51% at $8.56 per share at the time of writing on Wednesday morning.

Photo: Courtgesy of Yiorgos Ntrahas on Unsplash