Canopy Growth Corporation

Canopy Growth Corporation (TSX: WEED) is diversified cannabis, hemp and cannabis device company, which offer diverse brands and curated cannabis varieties across products like dried, oil and Softgel capsule forms, as well as medical devices.

Recent update

The group announced that it would cease operations at the following sites: St. John's, Newfoundland and Labrador ; Fredericton, New Brunswick ; Edmonton, Alberta ; Bowmanville, Ontario ; as well as its outdoor cannabis grow operations in Saskatchewan. This is likely to help the group in achieving the target of CAD 150 – CAD 200 million of cost savings.  The company is confident that the remaining sites will be able to produce the quantity and quality of cannabis required to meet current and future demand.

Key Highlights:

• Tremendous growth opportunity: The company’s core products are expected to reach CAD 22 billion by 2023 across Canada and the US, reflecting an increment of 4x and 6x, respectively from 2019. In the recent past, the cannabis products have witnessed strong momentum driven by the change in consumer preferences and higher traction of cannabis products across legal dispensaries. Moreover, an increase in the total store’s count suggests a change in trend within the cannabis products. We expect the momentum to continue in the foreseeable future aided by growth in the alcoholic beverages, recreational cannabis etc.                  

Source: Company Presentation

• Enhanced branding and retail presence: The company is emphasizing on its product portfolio through quality enhancing, interactive product launches, better-branding and improving overall customer experience. The US CBD market which constitutes tropicals & skincare, edibles, beverages, vape etc. are expected to grow exponentially in the coming days, and we expect the 2.0 products model would support the company’s performance in the foreseeable future. Moreover, the company is expanding its bricks and mortar presence across the US.

Source: Company Presentation 

Q2FY21 Financial Highlights:

• WEED announced its second quarter FY21 results, wherein the company posted revenue of CAD 150.828 million, significantly higher than CAD 85.621 million in the previous corresponding period (pcp). The increase was aided by growth across Canadian recreational revenue, continued strength in Storz & Bickel vaporizer sales and ThisWorks, coupled with the positive contribution from BioSteel acquisition in October 2019.
• Net revenue stood higher at CAD 135.3 million, up 77% on y-o-y.

Revenue Bifurcation (Source: Company Presentation)

• Gross margin stood at CAD 26.080 million, higher than CAD 3.643 million in pcp, thanks to the higher income, partially offset by a higher cost of sales. The company’s gross margin improved drastically to 19% from 5% in Q2FY20.
• Adjusted EBITDA loss reduced to CAD 85.7 million, as compared to CAD 150.4 million in pcp.

Source: Company Presentation

• The company’s net loss stood at CAD 96.552 million, as compared to a profit of CAD 242.65 million in pcp. The decline was due to inclusion of expected credit losses on financial assets and related charges amounting CAD 94.745 million and asset impairments and restructuring costs amounting CAD 46.363 million.

Q2FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company’s performance could be hindered by supply-chain disruption, lower acceptability of new product offerings, and by higher input costs. Also, the company is exposed to changes in the regulatory landscapes.

Stock Recommendation:

The stock of WEED is featuring a price return of ~49% and ~42% in the last three months and six-month, respectively, as the group is witnessing tremendous response from the CBD segment across the US coupled with an increase in retail stores. The stock has made a sharp recovery from the recent lows and closed above the long-term support level of 100-days, 150-days and 200-days simple moving averages (SMAs), indicating a bullish trend. Considering the aforesaid facts, current trading levels, we have given a “Hold” recommendation at the closing price of CAD 32.21 on December 14, 2020.

WEED Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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