Canadian cannabis licensed producer Canopy Growth (Canopy Growth Corp Stock Quote, Chart, News TSE:WEED) got a big target price cut from PI Financial’s Jason Zandberg on the back of the company’s disappointing quarterly report.
In an earnings update on Thursday, Zandberg kept his “Buy” rating but dropped his target from $80.00 to $50.00, which represented a 37.9 per cent return at the time of publication.
“The cut reflects our reduction in EBITDA estimates but also reflects the fact that WEED has been underperforming in the Canadian cannabis market.”
Shares of Canopy Growth Corp tumbled on Thursday on news of its fiscal first quarter 2020 which registered a loss of $1.28 billion or $3.69 per share for the three months ended June 30 on net revenues of $90.5 million, up from $25.9 million a year prior. Analysts had been calling for a loss of $0.70 per share on $107.1 in revenue. Canopy’s EBITDA for the Q1 was a loss of $92.0 million compared to last year’s EBITDA loss of $80.3 million
A notable metric was gross margins which fell from 43 per cent a year ago to $15 per cent of revenue this quarter. Canopy registered rec cannabis sales before excise taxes of $61.1 million, down 11 per cent quarter-over-quarter, while the company’s medical sales were $13.0 million, up 12 per cent from the previous quarter.
In the quarterly press release, Canopy highlighted its harvest of 40,960 kg of product during its Q1, above its previous forecast of 34,000 kg.
“The Q1 harvest is the first full-scale harvest since the retrofitting of its large-scale greenhouse facilities started in calendar 2018, and with a majority of the work completed at Mirabel, Delta, and Aldergrove facilities, the Company is now shifting its focus to optimizing these facilities for yield and cost. The Company believes these efforts will contribute to both revenue growth and gross margin improvements in coming months,” said the release.
In his update, Zandberg noted that $1.18 billion of the net loss was a one-time, non-cash charge on the extinguishment of warrant liability tied to extending the terms of Constellation Brands’ purchase warrants, which are now extended by two years. Zandberg also pointed to international medical sales which he said improved “significantly” from $1.8 million last quarter to $10.5 million, driven by the acquisition of C3, a German cannabinoid-based pharma company.
But the company’s guidance going forward came in below the analyst’s previous estimates, prompting Zandberg to lower his forecasts. For fiscal 2020, he is now calling for revenue and EBITDA of $650.9 million and negative $243.3 million, respectively, (previously $750.1 million and negative $83.8 million, respectively) and for fiscal 2021, revenue and EBITDA of $1,184 million and $3.6 million, respectively (previously $1,419 million and $378.9 million, respectively.
“The cut reflects our reduction in EBITDA estimates but also reflects the fact that WEED has been underperforming in the Canadian cannabis market,” Zandberg writes. “The -10 per cent quarter-on-quarter decline in cannabis sales compares unfavourably to Aphira at +158 per cent, Supreme Cannabis at +97 per cent, Zenabis Global at +77 per cent, Aurora Cannabis at +60 per cent and Cronos Group at +60 per cent. (Note: Supreme Cannabis and Aurora growth is based on pre-released guidance which has not been officially reported.)”