Bruce Linton: What Canopy is doing is like Amazon's growth strategy

Canopy Growth Corp. (WEED.TO), the world’s largest cannabis producer, posted a sizable loss in its fiscal fourth-quarter results late Thursday, despite generating revenue that came in above expectations as operating and marketing costs rose.

The Smiths Falls, Ont.-based company reported revenue of $94.1 million in the quarter ended March 31, up from $83 million in the fiscal third quarter. Analysts, on average, were expecting $92.2 million in revenue.

The company posted a net loss of $323.4 million, or $0.98 per share, compared with a loss of $61.5 million in the prior period. The loss was due in part to rising operating expenses, mainly from sales and marketing, increased compensation and acquisition-related costs. Analysts expected the company to report a net loss of $63.5 million and an adjusted loss of 25 cents a share.

Canopy’s sales and marketing expenses rose to $53.1 million, or 56 per cent of revenue, from $14.7 million in the prior period.

Shares in Canopy fell more than four per cent to $55.08 on the Toronto Stock Exchange shortly after markets opened Friday.

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Meanwhile, the company reported $68.9 million in revenue from Canada's recreational market, down from $71.6 million from the prior quarter.

In a note to clients released earlier this month when it initiated coverage on the company, Stifel analysts expected Canopy to report a “muted” $89 million in fourth-quarter revenue. Stifel said in its note that its near-term estimates on Canopy's financials are “more constrained … given the realities of the Canadian market and [the company's] deliberate approach in perfecting its supply chain to the detriment of immediately filling capacity.”

Canopy’s quarterly results come as the pot producer caps off a fiscal year that has seen it expand to several new countries, and acquire and invest in dozens of new companies. One of those deals includes Acreage Holdings Inc., where the Canadian company plans to acquire the U.S. multi-state operator once cannabis becomes legal in the U.S.

The company is also focusing on broadening its presence in the U.S. through a CBD strategy in which it has secured 4,000 acres of land to grow hemp plants across seven U.S. states, including New York which will account for half of its hemp production.

“The fourth quarter wraps up a historic year with major steps taken in Canada to build out our national platform while scaling all of our processes to bring cannabis to market," said Canopy Chairman and Co-CEO Bruce Linton in a statement.

"The third quarter of the year benefitted from months of advanced production while the fourth quarter relied more on efficient throughput and a more automated platform."

Analysts expect Canopy to post revenue of $790.8 million in fiscal 2020, up 244 per cent from fiscal 2019, according to analysts polled by Bloomberg.

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