Canopy Growth Reports $16.3M In Q2 Net Loss, Sales Of $131.4M, Pushes Out Positive Adjusted EBITDA Target

Canopy Growth Corporation WEED CGC announced its financial results Friday for the second quarter fiscal 2022 ended September 30, revealing a 3% year-over-year decline in net revenue to CA$131 million ($105.4 million).

Total net cannabis revenue increased by 1% over the same period reaching CA$95 million in the second quarter of 2022.

The company also reported an adjusted EBITDA loss of CA$163 million for the same period, representing a CA$77 million wider loss versus the same period of last year, which can be attributed to lower sales, a decline in gross margins, partially offset by the reduction in our total selling, general and administrative expenses.

In addition, Canopy pushed out a positive Adjusted EBITDA target due to market share challenges in the Canadian recreational business and a slower-than-expected ramp-up of U.S. distribution for BioSteel.

Nevertheless, Cantor Fitzgerald's analyst Pablo Zuanic recently said that BioSteel could end up being a key driver in the path to CA$250 million in sales, helped by constant growth around CBD and other non-marijuana businesses.

That said, the company still expects revenue acceleration in the second half of fiscal 2022, though more modest than previously anticipated.

Canopy is also taking steps to improve its Canadian recreational cannabis business by bolstering the supply of in-demand high THC flower products and new product launches across the flower, pre-rolls, vapes, edibles and beverages, which is expected to improve market share in addition to the implementation of a previously announced cost savings program, now well underway.

"Achieving profitability remains a top priority," David Klein, Canopy's CEO

said. "We are focused on increasing market share in Canada, premiumizing our product mix, and delivering on our cost savings commitment."

Subsequent to the quarter-end, the company announced it acquired the right to buy Wana Brands, the number one cannabis edibles brand in the U.S. by market share, upon federal cannabis legalization.

Q2 2022 Financial Highlights

• Net revenue, excluding the impact from acquired businesses, declined 13%, and cannabis revenue declined 14% versus the same period of 2021.
• The gross margin was a negative 54% for the period compared to 19% in the corresponding quarter of last year.
• Total selling, general and administrative expenses for the quarter dropped by 15% year-over-year, driven by a 49% year-over-year decline in general and administrative expenses, 38% year-over-year decline in research and development expenses and an increase of 49% year-over-year in selling and marketing expenses.
• Net earnings for the period amounted to a loss of CA$16 million, which is a CA$80 million improvement over the same period of 2021, driven primarily by other income totaling CA$196 million during the period mainly attributable to non-cash fair value changes of CA$233 million.
• Free cash flow was an outflow of CA$101 million, a 47% decrease in outflow versus the second quarter of 2021.
• Cash and short-term investments amounted to CA$2 billion on September 30, representing a decrease of CA$0.3 billion from CA$2.3 billion on March 31, reflecting EBITDA losses and capital investments.

Q2 2022 Business Highlights

• Increased vape market share by 20 bps to 8.5% and increased edibles market share by 50 bps to 8.7%, year-over-year.
• Maintained #1 market share in premium flower category, with 13.2%, down 310 bps quarter over quarter, #2 market share in the value flower category with 18.1%, down 540 bps sequentially.
• Flower products with in-demand attributes, including higher THC, have begun coming to market with supply expected to build over the second half of the fiscal year.
• Martha Stewart CBD remains one of the fastest-growing CBD brands across all formats.
• Launched small format pre-rolled joints, dubbed Tweed Quickies, and a range of premium flower SKUs, including new DOJA Okanagan Grown Ultra Sour and Cold Creek Kush, as well as DOJA Craft limited-time offerings.
• Launched the new nicotine-free, whisl CBD vaporizer in the U.S.
• Further expanded its beverage portfolio with Tweed Iced Tea.
• Launched Ace Valley Dream CBN gummies.

CGC Price Action

Canopy's stock traded 2.71% lower at $12.9 per share during the pre-market session on Friday morning.

Photo: Courtesy of Canopy Growth Corporation