Canadian Cannabis leader Canopy Growth (CGC) will report
third quarter (December) results this afternoon, and management will host a
call to provide commentary on those results at 8:30 tomorrow morning.
Estimates call for third quarter EPS of (CAD 0.25) vs. (CAD 0.15) last year with revenue up 277% to CAD 81.8 mln.
Last quarter, Canopy's growth missed expectations by a wide margin -- an unheard of 61% on the top-line. Revenue was up 32% but actually fell 10% sequentially.
Analysts were disappointed, but management offered up plenty of reasons why recreational legalization in Canada didn't result in an immediate surge in revenue.
Canopy said analysts weren't wrong, just early. The company is aiming for sustained, steady wins rather than a flash out of the gate.
Provinces were not ready to take product during the quarter, according to the company; shipments were limited to “stress testing”. Canopy also said that there was a pause in the medical market and a hiccup in the German market.
Still, Canopy said that it had 30% market share in Canada.
The hemp/CBD market has opened up in the U.S. and the potential for cannabis legalization in many forms and jurisdictions worldwide means the long-term outlook remains very promising.
Canopy is well positioned to partner with American farmers to move their hemp to market. The company is also well positioned in research for converting CBD to medical outcomes, such as reducing anxiety for dogs and geriatrics.
The company acquired vaporizer leader Storz & Bickel for EUR 145 mln in cash in December. Canopy received a hemp license from the state of New York in January and added CAD 30 mln to its Canopy Rivers investment last week.
Canopy is the most well-funded member of its sector, holding the backing of Constellation Brands (STZ), which owns 77% of the company.
Canopy Growth has a near $16 bln valuation and trades at ~80x FY19 sales or ~25x FY20 sales. Those high sales multiples assume 222% revenue growth this year and 225% growth next year. The stock is cheaper than less-established Tilray (TLRY) but more expensive than Aurora Cannabis (ACB). Canopy's Fiscal 2019 sales were expected to grow 275% heading into the last report. The options market is pricing in a ~8% move in the stock tomorrow.
- OUR VIEW
- LEARNING CENTER