Canopy Growth Surges as Q1 Results Crush Market Expectations

Better-than-expected first-quarter results drove Canopy Growth (NYSE: CGC) higher by 8% on Monday. The company’s net revenue surged 22% year-on-year in Q1 of fiscal 2020, while its adjusted EBITDA loss narrowed to CA$92 million – crushing analyst’s expectations. Canopy attributed the narrowing of losses to declining expenses and an 18% reduction in its headcount.

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The growth in its revenue is primarily driven by upbeat medical cannabis sales in Canada and Germany as well as higher than anticipated sales in Storz & Bickel (“S&B”) vaporizer. However, the rise in revenue was limited by a drop in Canadian recreational cannabis revenue amid COVID-19 pandemic. Rising competition in dried flower-based products also weighed on the revenue. The hemp stock has also undertaken a national repositioning of its Tweed dried flower value brand.

Canopy’s cannabis beverages in the spotlight for splendid growth

However, it is was the hemp stock’s cannabis beverage segment that stole the show. Canopy’s revenue from its Cannabis 2.0 products including beverages, chocolates, and vapes contributed 13% of first-quarter revenue, which is a huge jump from the 2% contributed last quarter. Canopy sold 1.2 million units of this beverage since its debut in March.

The pot producer clearly has its focus on the cannabis beverage market and plans to expand its presence through its alliance with Acreage Holdings. While speaking to Yahoo Finance, CEO David Klein stated that it was set to “double its capacity” for Cannabis Beverages in August.

Research firm, Cowen’s Managing Director Vivien Azer is particularly optimistic about this segment. She raised her price target for Canopy to C$30 from C$27. Even the hemp stock’s CFO, Mike Lee, in the Q1 conference call, stated that “Canopy expects the addition of a lot of retail stores in the second quarter”.

The company’s cash reserve at the end of Q1 increased to $2 billion as compared to $1.3 billion at the end of the previous quarter. This is also a welcome sign which shows that the hemp stocks cash burn rate continues to slow.

Canopy Growth Investors likely to remain cautiously optimistic

On a year-to-date basis, the hemp stock has lost 12.3% of its value as investors remain cautious about it amid the volatility and uncertainty. The hemp stock did gain on the back of better-than-expected Q1 results. However, we believe the investors will remain cautiously optimistic about the hemp stock as it is still far from profitability. Canopy is working actively on cost reduction as boosting its topline. Its CFO Mike Lee said, “Our marketing and R&D investments are being re-allocated to programs with high-return potential in order to drive sales.”

We’ll continue to keep our eyes on Canopy Growth to see if there will be a strong BUY opportunity for this hemp stock. Stay tuned.

Canopy Growth Surges as Q1 Results Crush Market Expectations

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Canopy Growth Surges as Q1 Results Crush Market Expectations