A quarter that was constrained by inventory issues isn’t dimming M Partners analyst Mason Brown’s bullish take on Canopy Growth Corp. (TSX:WEED).

Yesterday, Canopy Growth reported its Q3, 2017 results. The company earned $3.0-million, or two cents a share, on revenue of $9.8-million, a topline that was up 180 per cent over last year’s third quarter revenue of $3.5-million.

“The third quarter provided new opportunities and challenges for our business, with demand largely exceeding supply throughout the quarter,” said CEO Bruce Linton. “A function of our growing patient base, the time required to move from a record harvest to sale, and an extensive phenotyping exercise to establish breeding stock and further elevate our product offering all resulted in constrained product available for sale during the quarter. The successful late-quarter harvest of the Tweed Farms facility running at full capacity has begun to ease supply constraints while at the same time we have introduced a new diversity of product into our on-line store under the Tweed, Leafs By Snoop and DNA Genetics banners, driving strong sales this month.”

Brown notes that Canopy’s quarter fell below his expectation of EBITDA of negative $1.2-million (it was negative $2.4-million) and revenue of $11.9-million. The analyst says supply issues clearly hampered what would have been a quarter of real progress.

“Topline revenue misses due to a lack of desirable inventory in FQ3, but inventory shortage has subsided as WEED works through FQ4 and Tweed Farms (TF) product makes its way through processing,” he says. “Management noted throughout the quarter there was 1) a lack of high THC flower products; 2) few oil offerings; and 3) little diversity across price points (low strain numbers can be seen in Lift’s post on products over Nov and Dec). In quantifying the revenue ‘left on the table’, management estimates the company couldn’t meet 1/3 or more of their patient base. Since quarter end, WEED has processed the bulk of inventory that was awaiting processing, and on February 1st, WEED released a number of strains on its online store, resulting in the company’s first $1mm sales day. We modeled product working through inventory too fast, but we don’t expect this topline miss to carry through to future quarters as the company now has adequate inventory (and visibility) to push forward on the next few quarters of sales for TWD/BED patients as well as MT patients.”

Brown says his expectation of average patient consumption was also affected by a lack of inventory, but the analyst expects the average patient consumption of 0.50 grams per day will climb in the fourth quarter when supply issues begin to wane.

In a research update to clients today, Brown maintained his “Buy” rating and one-year price target of $14.40 on Canopy Growth Corp., implying a return of 21 per cent at the time of publication.

Brown thinks Canopy will post EBITDA of negative $4.3-million on revenue of $44.8-million in fiscal 2017. He expects these numbers will improve to EBITDA of positive $9.4-million on a topline of $139.8-million.