By Steve Gelsi
Canopy Growth Corp. shares fell sharply on Friday after the cannabis company posted a wider-than-expected loss and said it continues to face headwinds in its core Canadian cannabis business.
Canopy Growth said its recreational business-to-business net sales fell 40% in Canada because of insufficient supply of “in-demand” flower products and “continued price compression” particularly in the value-price dried flower business.
Business-to-consumer sales in Canadian cannabis fell 26%, “driven by increased competition from the rapid increase in third party retail locations,” the company said.
Canopy Growth (NAS:CGC) (TSE:CA:WEED) lost C$574.6 million, or $1.46 a share in its fiscal fourth quarter, compared to a loss of C$700 million, or $1.85 a share in the year-ago quarter.
Revenue for the three months ended March 31 fell to C$126.1 million from C$167.4 million in the year-ago period.
Analysts expected Constellation Brands Inc.-backed (NYS:STZ) backed Canopy Growth to report a loss of 30 cents a share on revenue of C$129.9 million, according to FactSet.
Shares dropped 15.5% in midday trades on Friday.
Canopy Growth said it held on to its No. 1 position in the premium flower category with products from Doja, 7acres and improved market share performance in the mainstream flower business with its Tweed rebrand as well as new flower and beverage offerings under the Tweed brand.
Looking ahead, Canopy Growth expects to generate positive adjusted Ebitda in fiscal year 2024, excluding investments in BioSteel drinks and its U.S. THC businesses.
“Achieving profitability is critical and we have undertaken additional initiatives to streamline and drive efficiencies for our global cannabis business,” said CEO David Klein. “In FY2023, we are focused on executing our path to profitability in Canada, while we continue to invest in high potential opportunities — particularly in BioSteel, and further developing our U.S. THC ecosystem, which we believe remains significantly under-appreciated by the market.”
The company also said it expects to generate cost savings of C$30 million to C$50 million in the cost of good sold and a drop of $C70 million to C$100 million in selling, general and administrative expenses within 12 to 18 months.
Two analysts reiterated their ratings on Canopy Growth but both cut their price target following the earnings update.
Describing the latest quarter as “challenging”, Cantor Fitzgerald analyst Pablo Zuanic reiterated a neutral rating on the stock and reduced his price target to C$6.75 from C$7.75.
“Recently announced cost savings and efforts to pivot away from value in the domestic rec business, should help Canopy Growth reach its target of positive Ebitda in fiscal year 2024,” Zuanic said.
CFRA analyst Garrett Nelson reiterated a hold rating on Canopy Growth and reduced his 12-month price target to C$10 from C$14.
“Once again, management pledged to reduce opex and capex, saying that with a renewed sense of urgency, it is focused on achieving profitability in Canada,” Nelson said. “Importantly, WEED’s cash and equivalents fell by C$560 million to C$1.42 billion sequentially and we think liquidity could become an issue in the coming quarters absent the passage of federal cannabis legislation in the U.S., which we view as unlikely with midterms elections looming.”
The company announced cost-cutting efforts on April 26 that will result in 250 layoffs out of its total employee count of about 3,084.
Prior to Friday’s trades, shares of Canopy Growth are down 35.5% in 2022 compared to a drop of 25% by the Nasdaq and a loss of 41.9% by the Cannabis ETF (PSE:THCX) .