The world's biggest cannabis company just gave a huge signal that the cannabis downturn may be coming to an end
- Canopy Growth, the world's largest cannabis company, reported financial results for the last three months of 2019 on Friday. The results surprised investors, sending the stock soaring.
- Canopy said that net revenue jumped 49% to C$123.8 million, and the company lost less money than analysts had feared.
- Canopy's stocks rose about 12% in trading on Friday, and other cannabis companies rode the wave as well, with Aurora Cananbis's stocks up 2% and Tilray up 5.3%.
- This comes after a long slump in the industry that saw cannabis stocks slump, mergers fall apart, and over 2,000 job cuts throughout the industry.
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Canopy Growth's latest earnings may just be signaling the end of the long downturn in the cannabis industry.
In its financial results on Friday, the company reported an unexpected 49% jump in net revenue to C$123.8 million in the last three months of 2019. The company also reported a narrower loss than analysts expected, according to estimates collected by Bloomberg News. That sent the stock soaring about 12% in trading on Friday.
The results come as a sign of good news for the industry, especially following Aurora Cannabis's downbeat earnings report on Thursday. The company announced last week cuts to 500 jobs and the departure of longtime CEO Terry Booth.
Other cannabis firms that have faced a difficult few months also saw their stocks rise, with Aurora Cananbis's stocks up 2%, Tilray up 5.3% and Cronos Group up 4.5%.
Canopy was Canada's top cannabis seller
Canopy said it was the top seller in Canada's adult-use market in the quarter, capturing 22% of the market. Sales to consumers increased 16% quarter-over-quarter, in part due to demand for the company's offerings for flower and pre-rolls, the company said.
"We delivered significant gross improvement in the third quarter driven by stronger revenues and higher capacity utilization," Canopy Growth CFO Mike Lee said in a statement. "Actions taken earlier this year are expected to meaningfully reduce stock-based compensation in FY21, and we have started to implement tighter cost controls across the organization."
The company reported an adjusted Ebitda loss of $91.7 million, which was better than analysts had anticipated on average. Ebitda is a measure of profit that excludes some expenses.
The results were a welcome surprise for the cannabis industry
The results caught analysts by surprise, especially considering the hefty costs that were expected to come with rolling out products like vapes and edibles, in Canada, some of which have been delayed in their release.
"We had expected only small improvements from the prior quarter, but Canopy is showing a meaningful progression," Bill Kirk, an analyst at MKM Partners wrote in a note following the release of the financial results, MarketWatch reported.
On a phone call with investors, Lee said a key priority for the company in 2020 would be to better manage supply and reduce cash burn.
"I am confident that the work we started in January will identify opportunities to reduce operating expenses," he said in his prepared remarks.
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