All Eyes Are on Canopy Growth’s Revenue

Canopy’s stated goal is to reach $1 billion in revenue this year

Canopy Growth Corp (NYSE:CGC) is one more cannabis stock that loses money. It will reveal its fiscal first-quarter earnings after the market close Wednesday. This report will be closely watched to see if the marijuana firm can reach $ 1 billion CAD in sales this fiscal year.

All Eyes Are on Canopy Growth’s Revenue
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Canopy Growth stock is very speculative. Its market value is $11.35 billion (in USD), one of the largest in the space. That’s 67x sales of $169.7 million USD for the year to March.

At $31.78, CGC stock is up just shy of 20% this year, but down 34% from its late April peak of $52.03. Its all-time peak was $59.25 in October 2018, since listing on the NYSE on May 24, 2018.

One of its two Co-CEOs and co-founders resigned earlier this year. CGC lost $685 million CAD ($514 million USD) for its fiscal year ending March 2019. Analysts expect losses of 31 cents per share and revenue of $84.6 million (USD) for its June quarter.

Canopy Growth ex-CEO Bruce Linton told Bloomberg in April its stated goal is to reach $1 billion CAD in sales this fiscal year. Bloomberg says its survey of analysts say revenue will only reach $840 million CAD for this year. So all eyes will be on whether the Q1 financial report puts CGC on a track for a billion $ year.

The Key Is Cannabis Production

CGC is one of the largest growers in Canada and recently received a New York state hemp processing and production license. It plans to invest up to $150 million in a 380k sq. ft. facility.

Since full legalization of marijuana in Canada in mid-October 2018, cannabis stocks are analyzed for their cannabis production and volumes sold. Last quarter CGC harvested 14,469 kilograms and sold 9,329 kg. Recreational cannabis was 75% of the total.

Analysts will be looking at the Q1 sequential increase over Q4 2018, to see if recreational usage was up significantly or if demand has leveled out.

CGC Has Plenty of Cash

At end of March CGC had over $4.48 billion CAD in cash and securities ($3.36 billion USD). So it can withstand losses for a good while. Last year CGC lost $521 million CAD ($391 million USD) in operating cash flow plus spent $644 million CAD on capex and acquisitions of $344 million CAD.

Most of CGC’s cash came from a $5 billion CAD ($4 billion USD) investment by beer and wine maker Constellation Brands (NYSE:STZ) in November 2018 for 37% of CGC. Canopy also later raised $600 million CAD in convertible notes.

CGC has only $923 million CAD long-term debt. In sum, Canopy will not have to raise more cash for several years if its losses continue.

What to Do After CGC Earnings?

When CGC’s earnings come out after the bell, watch both CGC’s production numbers and whether its revenue will be on a track for $1 billion CAD for the year. If it is, then CGC stock might jump significantly.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities.

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