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'We're certainly not tracking on the Amazon model': Canopy Growth reports $323M Q4 loss

Bruce Linton, CEO of Canopy Growth Corporation a medical marijuana company, speaks during an interview on CNBC on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 28, 2018. REUTERS/Brendan McDermid

Canopy Growth Corp. (WEED.TO) blamed rising expenses for a wider-than-expected loss in its fiscal fourth-quarter results posted after the closing bell on Thursday.

Co-chief executive Bruce Linton is assuring investors that while the company is spending heavily to secure a dominant position in global cannabis, it won’t need to do so forever.

“We’re certainly not tracking on the Amazon model, but you see the value of investing when people transform their behaviours. We're at the front of that,” Linton told analysts on a conference call Friday morning, referring to the e-commerce giant’s reputation for big spending. “You've seen, I think, the bottom of our margin trough.”

The Smiths Falls, Ont.-based company reported a net loss of $323.4 million, or 98 cents a share, compared to a loss of $54.4 million in the same quarter last year. According to FactSet, analysts on average predicted losses of $95.2 million, or 25 cents a share.

Toronto-listed shares fell 6.87 per cent to $53.70 at 10:35 a.m. ET.

The loss was due in part to rising operating expenses, mainly from sales and marketing, increased compensation and acquisition-related costs. Sales and marketing expenses rose to $53.1 million, or 56 per cent of revenue, from $14.7 million in the prior period.

“As you build out from 600,000 square feet licensed in Canada to 4.8 million square feet over about a five quarter period, you end up with a lot of assets that are coming on stream but are not on stream. They carry burden that doesn't show up in benefit,” Linton said.

Adjusted gross margin fell to 16 per cent in the fourth quarter, from 22 per cent in the previous period.

“We believe we are on a path for reported gross margins to be above 40 per cent by the end of the fiscal year, and will increase further in the future with higher efficiencies and increased sales of value added products,” acting Chief Financial Officer Mike Lee said on the call.

He said investors should expect near-term costs associated with the company’s facility to produce infused beverages, which is set to be completed in mid-September.

Linton said he sees the Canadian roll-out of next-generation cannabis products like drinks, edibles, vapes and lotions as a financial turning point for Canopy Growth as it introduces its suite of higher-margin products. He said the company will have beverages and edibles in the market in time for the holidays in December.

Revenue climbed to $94.1 million in the quarter ended March 31, up from $83 million in the fiscal third quarter. Net of excise taxes, analysts expected the company to achieve revenue of $90.6 million in its fourth quarter.

Canopy Growth said it sold 9,326 kilograms or kilogram equivalents of cannabis in the fourth quarter. That’s up from 2,528 kilogram or kilogram equivalents sold in the same period last year.

The company reported $68.9 million in revenue from Canada's recreational market, down from $71.6 million from the prior quarter.

Meanwhile, Canopy Growth is working to boost its presence in the United States and other global markets.

Shareholders approved a deal to buy U.S. multi-state operator Acreage Holdings Inc. (ACRG-U.CN) on Wednesday. The deal hinges on cannabis becoming permissible to sell under U.S. federal law.

Last month, Canopy Growth said it would buy skincare company This Works for $73.8 million to add beauty and sleep products to its portfolio of cannabis, oil, hemp and medical capsules.

Lee said the company is exploring ways to accelerate acquisition integration by developing a “turn-key M&A playbook.” The comment comes as the company warned the Acreage acquisition could lead to a charge that would have a “materially negative impact on net income in the first quarter of fiscal 2020.”

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