by Ian Harvey
February 16, 2021
Canopy Growth shares surged nearly 12% Tuesday as the Canadian cannabis giant reported better than expected results in its latest quarter and delivered unexpected and upbeat guidance for investors.
Earnings Predictions Members gain 415% Potential Profit.
Where to Now?
The Earnings for Canopy Growth Shares.....
Canopy Growth shares posted a wider-than-expected loss for its fiscal third quarter last Tuesday, but revenue that beat estimates, causing its stock to fall then recover in premarket trade.
Smith Falls, Ontario-based Canopy posted a net loss of C$829 million ($650.9 million), or C$2.43 a share, for the quarter to Dec. 31, wider than the loss of C$109.6 million, or 26 cents a share, posted in the year-earlier period. The consensus was for a loss of 32 cents a share.
Revenue net of excise taxes rose to C152.5 million from C$123.8 million, above the consensus of C$149.8 million.
Net cannabis revenue came to C$99 million, boosted by an increase in Canadian recreational and international medical sales. Growth was also boosted by an increase in sales of S&B vapes, This Works health and wellness products and demand for the company's U.S. CBD products and consumer packaged goods under the BioSteel sports nutrition brand acquired in 2019. The net loss was driven by impairment and restructuring charges.
Canopy Growth shares were up 2% premarket and have gained 123% in the last 12 months.
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Cannabis industry’s biggest producer, Canopy Growth Corp (NYSE: CGC) will report earnings before the market opens. The consensus estimate is for a loss of $0.21 per share on revenue of $115.75 million; but the Whisper number is better at ($0.10) per share.
Consensus estimates are for year-over-year earnings growth of 22.22% with revenue increasing by 23.44%.
For the last reported quarter, it was expected that Canopy Growth shares would post a loss of $0.23 per share when it actually produced earnings of $0.16, delivering a surprise of +169.57%.
Over the last four quarters, the company has beaten consensus EPS estimates three times.
Short interest has decreased by 22.8% and overall earnings estimates have been unchanged since the company's last earnings release.
Canopy Growth shares are at highs not seen since 2019. Of all the pure-play U.S.-listed marijuana stocks, it is worth the most, with a market value of around $16.5 billion.
The company, when it reported fiscal second-quarter earnings in November, said it would channel products through its U.S. infrastructure when U.S. marijuana laws allowed it.
"We've already developed a U.S. ecosystem that positions us well as a hemp and cannabis powerhouse — when, not if, U.S. permissibility happens," CEO David Klein said.
Canopy also said its market share in Canada had increased, as more pot shops opened there. And it said it was "firmly on a path" to hit positive adjusted EBITDA at some point during the next fiscal year. EBITDA stands for earnings before interest, taxes, depreciation and amortization.
Under Klein's leadership, the company has worked to undo the expansion efforts of former CEO Bruce Linton. Linton tried to expand globally into early, undeveloped cannabis markets and strike big, headline-grabbing deals elsewhere. But as losses piled up, he was ousted in 2019.
Influencing Factors for Canopy Growth Shares.....
Canopy has a favorable position in several geographical markets. In Germany, it's the top supplier of dried marijuana flower, and it's among the leaders in the U.S. and Canadian markets as well.
It's attempting to push out new products and expand its production
capacity while clamping down on excessive costs during its seemingly endless
Like many other cannabis companies, Canopy Growth shares have struggled to reach profitability, in part because of its heavy investment in production facilities. To address this issue, it reduced its high-cost cultivation facilities in Canada throughout the year, curbing output capacity by 40%. It also terminated its cultivation operations in Colombia and New York, divested itself of its African assets, and canceled plans to expand production elsewhere. These actions were part of the company's larger plan to reduce its cash burn rate and focus on the most profitable segments of its business.
Canopy's lineup of recreational cannabis-infused beverages, with brands including Tweed, Deep Space, and others, is selling like hotcakes.
Canopy's beverage sales will also benefit from the company's relationship with Constellation Brands, (NYSE:STZ) an alcoholic beverage company that invested $245 million in Canopy in exchange for a 9.9% stake in 2017.
With President Joe Biden in the White House, a Democrat-controlled House and a 50-50 split in the Senate, marijuana stocks have begun to recover some of the losses they endured over the past two years, when losses and cash concerns turned investors away.
And in February, Senate Majority Leader Charles Schumer and Sens. Cory Booker and Ron Wyden said they would make cannabis reform a priority this year. Industry executives said that Jazz Pharmaceuticals' (JAZZ) planned acquisition of GW Pharmaceuticals (GWPH), which makes drugs derived from cannabis, added to the mainstream acceptance. The House voted to pass the MORE Act in December, and on Election Day, five states voted to legalize cannabis in some form.
Cannabis industry executives have also predicted a domino effect — with neighboring states feeling pressure to legalize in order to prevent a flight of tax revenue to newly legal states. And they say having more legal states increases the likelihood the government will take action to roll back restrictions on a national level.
On Canopy’s earnings call, Klein also officially moved forward his timeline for when the company expects U.S. cannabis federal permissibility, saying the expectation is that reforms could be delivered by Congress in 2021.
"We are executing against our cost savings program, with several initiatives already completed and more underway to build a leaner and more agile business," Chief Financial Officer Mike Lee said in a statement. "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."
In its new guidance, Canopy projected net revenue to achieve a compounded annual growth rate over its next two fiscal years of 40 to 50%. That guide was of particular importance, according to top analyst and Cowen Managing Director Vivien Azer, who had expected just half that heading into earnings.
“We find this growth to be
particularly encouraging, as our pre-earnings published model only looked for a
22% CAGR over the same time horizon,” she wrote in a new note.
This week's trading vaulted cannabis stocks, most of which were already extended in price, to mind-boggling gains. Disciplined investors who locked in profits were surely relieved they had stepped aside when the stocks tumbled from their heights Thursday.
Shares of Canopy Growth shares rallied 63% in January. In February, they rose as much as 41% to an intraday high Wednesday. Thursday they fell 22%.
Will Canopy Growth Shares Begin To Surge Again?
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!