It’s hard to find good news in the markets of late. But if you’re looking for bad developments, look no further than the cannabis sector. That is where really bad news resides. And if you need proof, check out the industry’s bellwether stock: Canopy Growth (NASDAQ:CGC) (TSX:WEED).
Once the largest cannabis company on the planet, the Canadian-based marijuana grower unveiled its latest earnings at the end of last week. The headline numbers were not good. And it took the market very little time to react.
Canopy shares closed down just over 12% on the NASDAQ last Friday, finishing the day at US$4.88 ahead of the long weekend.
Source: Investing.com
The shares did not fare much better north of the border, where, trading in Canada on the TSX, they fell in similar fashion to close at C$6.18, followed by another slight trimming on Monday, since markets were open, losing another 1.6%.
The company reported a 25% drop in revenue in its fiscal fourth quarter compared with the same period last year. Net revenues for the latest quarter totaled C$111.8 million (US$87.6 million), well below analysts’ expectations. On a year-over-year comparison, the weed grower saw its revenues drop 35%, which included a 36% drop in recreational cannabis revenue and a 33% decrease in revenues generated by medical marijuana and other products, including edibles.
Revenues stemming from other consumer products—including vapes, skin-care creams, sports drinks, and protein powders also dipped about 3% to hit C$45.8 million (US35.9 million).
The net loss for the quarter came in at C$578.6 million (US$453.5 million), slightly better than the previous year. But that was not enough to stop investors from hitting the sell button.
The news was enough to spur Cowen analyst Vivien Azer, who has championed the cannabis sector since Canadian legalization in 2018, to slash her target price for Canopy stock almost in half, to C$6.50. She pointed to the fact that this has been the third consecutive quarter where the company’s revenues dropped.
Canopy Announces Deal For U.S. Jetty Extracts
Just one week before unveiling its latest earnings, Canopy announced its most recent acquisition, a deal to buy a California-based cannabis extraction and vape producer Jetty Extracts. The move is merely an option to buy a 75% stake in the company, a transaction that would only be triggered when the U.S. legalizes cannabis federally. The deal is reportedly worth US$69 million.
The move provided some insight into how Canopy intends to improve its positioning in the U.S. market. It is a strategy that it has employed in previous deals, including an agreement with U.S.-based Acreage Holdings that would only be enacted upon U.S. legalization of cannabis.
In an interview after the latest deal was announced, Canopy CEO David Klein said the approach allows the company to remain as “asset-light” as possible.