When Will Canopy Growth Finally Turn a Profit?

Canadian cannabis stocks have continued to underperform over this past year. Cannabis stocks like Canopy Growth Corporation (NYSE:CGC) have taken a beating and have seen massive hits on valuation. In fact, the stock is trading at [stock_market_widget type=”inline” symbol=”CGC” template=”basic” color=”default”], a far cry away from over $60 per share in early 2019. However, sound leadership, a slew of cost cutting measures, increase in revenues, and the launch of several new products have caused cannabis stock investors to reconsider a position in CGC – but when will Canopy Growth finally turn a profit?

Canopy Growth’s Stellar Q2

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The cannabis stock posted record revenues for the second quarter of fiscal 2021 at $135.3 million, a 77% increase from the same period in fiscal 2020. Adjusted EBITDA loss was $85.7 million compared to a loss of $150.4 million in Q2 2020.

Analysts had expected revenues of $119.07 million. EPS (earnings per share) was -$0.09 compared to -$0.4 that analysts had predicted. It booked a net loss of $96.6 million, significantly lower compared to $128 million in the previous quarter.

While domestic sales surged, international sales fell 3% to $17.5 million due to a packaging supply issue with one of the distributors which the company says has since been resolved.

The marijuana producer has a market share of 15.5% in Canada’s recreational marijuana space.

Canopy Continues Cutting Costs

Canopy’s CEO David Klein hasn’t shied away from making difficult decisions since he took over the leadership role in January 2020. Klein says Canopy is implementing initiatives that will result in cost savings of $150 million to $200 million as it moves to being profitable.

In April, he undertook several steps as part of Canopy’s cost cutting measures including:

Exiting all business operations in South Africa and Lesotho and transferring ownership to a local business.
Shutting down its indoor facility in Yorkton, Saskatchewan, Canada.
Ceasing operations at its cultivation facility in Colombia.
Ceasing hemp farming operations in Springfield, New York, due to an abundance of hemp produced in the 2019 growing season.
Amid the pandemic, Canopy Growth also laid off 200 employees in North America and the UK in April of 2020

All of these calls began to pay off in the first quarter of FY21 when the company reported an EPS of -$0.3 compared to a loss of $0.54 in the same period of FY20.

CGC and Growing Momentum for Cannabis Legalization in the U.S.

While the U.S. continues towards a growing political divide, one common factor uniting both sides, at the state level at least, is the legalization of marijuana for recreational and medicinal use. Traditionally conservative states like Arizona, South Dakota, Mississippi and Montana have recently legalized cannabis for one use or the other.

In an interview to Jim Cramer on CNBC’s Mad Money, Klein said that it was unlikely of these states to legalize weed but they did it, and he believes that this will drive momentum for neighboring states to legalize weed too. New York or Pennsylvania will not want their residents to travel across the state to put money into tax coffers at New Jersey.

Additionally, Canopy also launched Martha Stewart branded health and wellness CBD gummies, oil and soft gels in September 2020.

The cannabis company’s S&B vaporizer is picking up sales as its revenue in Q2 FY21 increased 100% over Q2 2020, thanks to an expanded distribution network in the USA.

As the company continues to increase efficiency and save costs, the path to profitability seems clear. It might not be profitable as soon as FY22 but the company can afford a high cash burn thanks to Constellation Brands backing it up. It should definitely be on your watch list.

When Will Canopy Growth Finally Turn a Profit?

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When Will Canopy Growth Finally Turn a Profit?