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Canopy Growth earnings: Pot giant predicts profit in 2022, $829M net loss in Q3

·5 min read
Canopy Growth reported better than expected third quarter financial results on Tuesday, and expects to turn a profit in 2022  (REUTERS/Chris Wattie)
Canopy Growth reported better than expected third quarter financial results on Tuesday, and expects to turn a profit in 2022 (REUTERS/Chris Wattie)

Canopy Growth (WEED.TO)(CGC) expects to turn a profit in 2022. The projection comes as the pot giant looks to turn the page on 2020, a year marked by mass layoffs, retreats from foreign markets, stiffer competition, and pandemic-related closures at its chain of company-owned stores.

Reflecting on his first year as CEO, David Klein said he is extremely proud of the company following a series of “difficult decisions” aimed at improving financial performance. Canopy is now looking ahead to expansion into the United States, where political will to change the legal status of cannabis appears to be gaining momentum.

“Now, in our fourth quarter, we are at the end of that transition year and our team has made great progress,” Klein told analysts on a post-earnings conference call on Tuesday. “I am excited more than ever about achieving Canopy’s vision of unleashing the power of cannabis to improve people's lives.”

The profit projection by the Canadian pot giant follows better-than-expected financial results reported on Tuesday, including a 33 percent annualized jump in recreational pot sales and record quarterly net revenue.

The Smiths Falls, Ont.-based company said it generated a record-setting $152.5 million in sales in the three months ending Dec. 31, 2020, an increase of 23 per cent year-over-year. Canopy said sales climbed across its Canadian recreational and international medical businesses, as well as its BioSteel beverage business and U.S. CBD unit.

The company booked an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $68 million, a 43 per cent improvement from the same quarter last year. Analysts polled by Bloomberg expected Canopy to report revenue of $147.6 million and an adjusted EBITDA loss of $71.1 million.

“We’ve continued to execute against our new strategy, strengthening our competitive position in our core markets, and accelerating our path to profitability,” Klein said in a news release on Tuesday.

Despite the sunny outlook, consequences of Canopy’s “transition year” were apparent in this latest quarter. The company’s net loss widened to $829 million, from $109 million in the year-ago quarter. This includes a cash charge of $124.4 million. The company said the loss was largely due to impairment and restructuring charges related to Klein’s sweeping cuts to Canopy’s sprawling operations. The company said $382 million of these charges are related to the decision to close a number of cultivation sites last December.

When will Canopy Growth be profitable?

Canopy expects to hit positive adjusted EBITDA during the second half of 2022, and 20 per cent adjusted EBITDA margin for the full year full year of 2024. It also expects positive operating cash flow for the full year of 2023, and positive free cash flow for the full year of 2024. The projections are based on Canopy’s cost savings efforts, and assumes the Canadian legal recreational market will grow 40 per cent this year, and 25 to 30 per cent in each of the two following years.

"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 added in Tuesday’s statement.

Canopy said it decreased its net headcount by 29 per cent in the past 12 months, a figure that includes the addition of about 500 new staff in “strategic roles to support growth” in the current fiscal year. Klein also credited implementing a “flexible workforce model” for improving efficiency and reducing costs.

When will Canopy enter the U.S. with THC cannabis?

Canopy’s latest financial results come amid a broad rally in Canadian cannabis shares driven by hopes for a policy shift in the United States that would remove pot from the country’s list of Schedule 1 drugs, which includes heroin.

Earlier this month, Democratic Senators Cory Booker, Ron Wyden, and Chuck Schumer issued a joint statement saying they would work to advance comprehensive cannabis reform legislation in the current Congress. Draft legislation is expected “in the early part of this year.” Jefferies analyst Owen Bennett said he expects “a huge inflow of institutional money” upon a change in pot’s legal status, as companies begin to list on U.S. exchanges.

“We expect significant cannabis reforms during this congress,” Klein said on Tuesday’s call, reaffirming his previous projection for entering the market with THC cannabis later this year.

Canopy has an agreement to acquire U.S. multi-state operatior Acreage Holdings (ACRGF). The deal is triggered by cannabis sales becoming permissable under U.S. federal law. MKM analyst Bill Kirk commented that Canopy is unique compared to Canadian peers in a research note on Monday, noting "[No] other Canadian name has an immediate U.S. opportunity when permissibility arrives."

In Canada, the cannabis sector has benefited from strong recreational sales momentum. Earlier this month, Statistics Canada reported that non-medical sales overtook illegal transactions for the first time in the third quarter of 2020. The federal agency said combined medical and non-medical sales outpaced the illegal market for the first time in the previous quarter.

Lee said Canopy’s sales will continue to be 80 per cent led by dried flower and pre-rolled joints over the next 12 to 18 months, with the sales growth for the company’s beverage portfolio remaining “muted” until rules allow consumption lounges and larger individual purchase quantities.

Toronto-listed Canopy shares have climbed 78 per cent so far in 2021. The stock jumped 11.88 per cent to $62.34 at 12:43 p.m. ET.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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