Last week, Canopy Growth Corp. (NYSE: CGC) reported earnings for its first quarter 2020, ended June 30…
The results showed that gross revenues increased 299% over the previous year’s quarter and net revenues were up 249%.
Furthermore, the company harvested 40,960 kilograms of product for the quarter — a 323% increase over the prior year’s 9,685 kilograms.
So why did CGC sell off sharply after quarterly news reported last week?
That’s “B” for Billion
Revenues were actually down 4% from Q1 2019. So the company didn’t grow on a quarter-over-quarter basis.
Moreover, Canopy reported a whopping quarterly loss of C$1.281 billion — that’s with a “B” — compared with $90.9 million the prior year.
What are we to make of these numbers? Is it time to throw in the towel with Canopy Growth?
The main reason for Canopy’s large quarterly loss isn’t due to operations but to a noncash charge of $1.2 billion.
This charge, based on “loss on extinguishment of warrants,” is related to Constellation brand’s multibillion-dollar investment in CGC and CGC’s own buyout option with American cannabis company Acreage Holdings Inc.
This one-time event isn’t related to Canopy’s operations and was necessary for the company to secure a strong foothold in the emerging American cannabis market.
With the general sell-off in pot stocks over the past four or five months in general, folks couldn’t stomach the news.
Plus, we had a CEO shake up earlier this year.
CGC has been going through a shakeup of its own over this period, replacing former CEO and founder Bruce Linton with new CEO Mark Zekulin.
The market didn’t like this change, as Bruce Linton is practically a legendary cannabis entrepreneur to the pot market.
Sales of straight cannabis products were up an awesome 94% quarter over quarter. Therefore, the quarterly decline in gross revenues at CGC isn’t due to dried cannabis.
We saw “Cannabis 1.0” hit Canada last year with legal recreational dried flower, and this year a new wave, “Cannabis 2.0,” will reach the country with edibles legalization. Legal edibles, which include confections, candies and beverages, will create a new demand stream for Canopy’s extracts and oils business.
I mentioned Bruce Linton’s exit last month. But even the ousted Linton likes CGC at current prices.
Despite being relieved of his position, he’s loading up on shares in the company he founded and watching for dip-buying opportunities.
Linton is the ultimate CGC and cannabis insider, and if he sees a big buying opportunity in the cannabis company he helped build from scratch, perhaps you should too.
For Technology Profits Daily,
Chief Technology Expert, Technology Profits Daily