Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) is on everyone's minds right now. The market has reacted to the company's disappointing quarterly results, and CGC stock has dropped significantly in recent days. Because Canopy stands as the leading cannabis company by market cap, its results have the power to shape investor sentiment better than most.
If this cannabis company isn't making a profit, what chance really has any other company? Or is it simply that there is something inherently wrong in management's running of the company.
CGC Stock: Just a Blip?
The ability to make a serious profit within this industry is proving all too hard—well, that's if we look at Canopy's recent results.
The company already showed a loss of $157 million CAD during the last three months of 2018. Now, in Q1 2019, those operating losses increased by 54%, showing that as time goes on, Canopy is spending more and more to stay afloat.
Despite the losses, Canopy Growth is still sitting on a massive fund of $4.5 billion CAD, something that may ease investors' minds. However, much of this capital has come from its deal with Constellation Brands (NYSE:STZ) to produce cannabis-infused beverages, and not necessarily the result of hard-earned sales. Unless Canopy shows profitability in its cannabis-growing operations, the company will eventually burn through its cash pile.
CGC Stock: International Sales
International sales brought in just $1.8 million CAD in Q1 2019. This showed that sales outside of Canada actually dropped in comparison to the previous quarter. With so much investment made to expand international operations, declining demand for product is not what investors want to see right now. If international sales do eventually get off the ground, then this is one potential that will bring the company profitability. But who wants to wait and see? There are other smaller cannabis companies out there with smaller losses and greater profits, by comparison; take HEXO Corp. (TSX:HEXO) (NYSE:HEXO) as one example.
Where the US is concerned, the company has spent $300 million for the right to buy Acreage Holdings should the US federal government legalize cannabis. This would give it a spread into the US. But of course, not only is this dependent on the ambiguous total legalization of cannabis, but it may also come with a host of issues such as an FDA clamp-down on cannabis quality, which could increase operational costs further.
At present, CGC stock is selling for $40.16 USD on the NYSE, down approximately 8% since Friday.
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