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Canopy Growth Stock Is Falling After Earnings. Blame Unexpected Losses.

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CFO Mike Lee said Canopy is committed to being profitable in terms of adjusted Ebitda during the second half of fiscal 2022.

Dreamstime

Larger-than-expected losses continued at

Canopy Growth

during its fiscal fourth quarter, sending the stock lower on Tuesday afternoon.

Canopy (ticker: CGC) reported a fiscal fourth-quarter net loss of 700 million Canadian dollars (US$580.9 million), or C$1.85 a share. The consensus expectation on Wall Street was that the loss would be 25 Canadian cents, according to FactSet. Net revenue of C$148.4 million came in short of estimates at C$151.4 million, according to FactSet.

Canopy stock was down 4.4% to $24.94 Tuesday afternoon. The cannabis exchange-traded fund

ETFMG Alternative Harvest

(MJ) was down 2.5%, while the

S&P 500

index was flat.

“While we didn’t expect a significant 4Q’21 operational beat, Canopy’s losses were wider than anticipated,” MKM Partners analyst Bill Kirk wrote in a note Tuesday. “Particularly disappointing was adjusted gross margin of 14%, compared to 26% in 3Q and 42% in the year prior.”

Chief Financial Officer
Mike Lee
said in the earnings release that the company is working to cut costs and deliver savings of between C$150 million and C$200 million within the next 18 months. He said the company is committed to becoming profitable—at least in terms of in terms of adjusted earnings before interest, taxes, depreciation, and amortization—during the second half of fiscal 2022.

“After Canopy’s 4Q’21 and through the re-opening of the Canadian economy, we expect the Company to return to sequential growth and have better aligned its supply chain/logistics to capture domestic and international demand opportunities,” wrote Kirk.

Kirk maintained his Buy rating with a C$55 price target. He said that while he thinks the U.S. market will ultimately be the best opportunity in cannabis, Canopy’s improving position in Canada is a positive sign.

CFRA analyst
Garrett Nelson,
though, lowered his rating on Canopy stock to Buy from Strong Buy.

“While the company’s results disappointed, we think investors are likely to overlook the weaker-than-expected quarter and focus on the positive guidance update,” Nelson wrote. “We lower our opinion to Buy from Strong Buy, as we are less bullish on the prospects for the shares over the next 18 months, but see mean reversion potential.”

Write to Connor Smith at [email protected]

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