Canopy Growth Corporation (TSX:WEED) released it’s Q4 sales report today which showed a loss in its most recent quarter. This loss was attested to massive operational costs — a 149% surge in overall operating expenses to $58.2 million from $23.4 million in the same period last year.
These operating expenses are necessary for the licensed marijuana producer as it readies itself for the legalization of recreational marijuana in Canada in October.
The report showed a net loss attributable to shareholders of $61.5-million, this is a significant sum when compared to a $12-million loss during the same quarter a year ago. Losses around the $12.8 million mark were expected, according to analysts surveyed by Thomson Reuters Eikon.
Where Has the Revenue Gone?
The company has been investing significantly in activities which will prepare Canopy to participate and lead the recreational cannabis market in Canada. Canada legalized recreational cannabis just over a week ago with the passing of Bill C-45 and the law is expected to take effect in October.
Canopy has been investing across its entire business operations including production, fulfillment, marketing, sales and general administration. The company is preparing to supply what will be a very large and increased demand for its product in the Canadian recreational cannabis market. Management believes that clever investment made now in the fourth quarter will lead to significantly greater revenues beginning in the second quarter of fiscal 2019.
Expansion efforts have been noted at Aurora Cannabis (OTCQX:ACBFF) (TSX:ACB), MedReleaf (OTCPK:MEDFF), and other companies across this sector also.
Facility changes included:
-Changing 4 of its 24 flower rooms into mother/clone rooms for the cultivation of 200,000 clones that were then used to plant over 1.7 million sq ft of greenhouses in British Columbia and Quebec.
-Using 3 flower rooms to build a large footprint pre-pack room allowing the company to ready its product for shipment to provincial and territorial agencies in Q2 of 2019.
Speaking of the companies expenditure and plans for 2019 Bruce Linton, Chairman and CEO of Canopy Growth stated:
“Inventories on hand today, which will be used to fill a nationwide sales channel that does not yet exist, will determine early market share. Producing sites and distribution capability in place today, not next year or the year after, will keep the channel full, build consumer affinity and maintain market share. With the largest inventory and capacity today, Canopy Growth is uniquely positioned to go beyond our current commitments to provincial agencies and cannabis retailers in order to successfully open the regulated recreational cannabis market in Canada as a producer of choice nationwide.”
Shareholders are unhappy today however as the stock has decreased upon the release of the Q4 report. At the market opening, Canopy stock fell 3.9% to $29.7 per share from its previous day’s close of $30.95 in the US market. It opened 1% lower in the Canadian market. At the time of writing, it’s stock has dropped further with a decrease hovering around the -9% mark.
The good news in all this is that company still achieved a whopping sales growth of 55% this year. Unfortunately, it was not enough to offset expansion plans and increased operational costs but perhaps taking a hit now will pay off come October when the recreational cannabis market will surely boom.
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