Canopy Growth Corporation Reports Second Quarter Fiscal 2018 Financial Results as it Expands Infrastructure for Canadian and International Markets

Canopy Growth Corporation (WEED.TO) (TWMJF) released its financial results for the second quarter that ended on September 30^th.

After the quarter ended, Canopy Growth entered a strategic relationship with Constellation Brands. As part of the agreement, an affiliate of Constellation has invested approximately $245 million in Canopy Growth in exchange for 9.9% equity and the parties have agreed to collaborate on new product development.

Financial and Liquidity Highlights

During the quarter, Canopy Growth recorded a $1.6 million net loss on $17.6 million in revenue. When compared to the same period last year, revenue increased by more than 100% while the net loss increased significantly (recorded $5.4 million in net income during the period)
Canopy sold 2,020 kilograms and kilogram equivalents; a 73% increase over second quarter fiscal 2017, and a 10% increase over prior quarter. The weighted average cost per gram before shipping and fulfillment was $1.25 per gram as compared to $1.27 per gram in the prior quarter. The cost per gram also reflects value-add processing for cannabis oils and sector-exclusive Softgel capsules, both carrying significantly higher margins than dried flower product. The weighted average cost per gram to the point of harvest fell to only $0.72 per gram, the fifth consecutive quarter when the cost to the point of harvest was less than $1 per gram and declined from the previous quarter.
So far this year, Canopy has sold 3,850 kilograms and kilogram equivalents at an average price of $7.98 per gram compared to 2,153 kilograms at an average price of $7.05 per gram during the same period last year
Adjusted EBITDA amounted to a loss of $6.2 million compared to an Adjusted EBITDA loss of $1.9 million in the comparative quarter last year.
Management believes the ongoing spending on building the company’s significant and diversified production platform, world-leading brands, unparalleled international reach, and iconic partnerships, all of which directly impacted profitability during the current period, is a prudent long-term investment to strengthen the global leadership position heading into 2018.
As of September 30^th, Canopy had $73.8 million of inventory and $23.5 million of biological assets.
As of September 30^th, Canopy Growth had $108.2 million in cash and cash equivalents, representing an increase of $6.4 million from the prior quarter. The increase is attributable to combined net proceeds from the $25 million private placement in July, Canopy River’s $36 million private placement, and the exercise of options and warrants. This increase was mostly offset by cash used to fund operations of $22.9 million and investments in facility enhancements totaling $25.5 million. The company’s cash and cash equivalents includes cash held by Canopy Rivers amounting to $46.5 million as of September 30^th.
As of September 30^th, Canopy Growth held 12,064 kilograms of dry cannabis and 2,683 L of cannabis oils, ranging from concentrated resins, or refined oil, to finished oil. Included in the dry cannabis quantities was 1,679 kilograms available for sale in the company’s online stores and 3,355 kilograms in process of finishing or awaiting approval for sale and 7,030 kilograms of extract-grade cannabis held for conversion to saleable oils and capsules.

Expansion Initiatives

On September 21^st, Canopy Growth established a binding strategic partnership in the Danish market. Spectrum Denmark ApS will be a joint venture between Canopy Growth and Danish Cannabis ApS which will serve the needs of Danish medical cannabis patients with Spectrum’s proven products.
On September 11^th, Canopy and its wholly-owned subsidiary Spektrum Cannabis GmbH announced a supply license agreement with Spain’s Alcaliber, S.A. Per the supply license agreement, Canopy Growth and Spektrum granted Alcaliber a license to use certain strains and seeds to be grown and cultivated at Alcaliber’s facilities for sale worldwide.
On September 8^th, the company announced construction of a new 212,000 sq. ft. greenhouse and the purchase of a neighboring 450,000 sq. ft. greenhouse in Niagara-on-the-Lake, Ontario; which upon completion will expand the total area under glass at Tweed Farms to over 1 million sq. ft.
On October 11^th, Canopy Growth announced that it had entered a definitive joint venture agreement with a greenhouse operator to develop 1.3 million sq. ft. of greenhouse growing capacity in British Columbia with an option for an additional 1.7 million sq. ft. greenhouse also in British Columbia.
On October 25^th, the company announced that it launched a strategic partnership in the Jamaican cannabis market as part of its ongoing international expansion. Grow House JA Limited – to operate as Tweed Limited JA, will serve the needs of the Jamaican medical cannabis market. Canopy Growth holds 49% of Tweed JA, which, with conditional license approvals already in place, has already begun construction of its facility.

From the CEO

Canopy Growth Chairman & CEO Bruce Linton said, “With our objective to win and retain significant future market share, and backed by the recent $245 million investment from Constellation, we remain focused on the expansion of our cultivation capacity, extraction platform and finished branded products programs” said “The historic cannabis supply MOU that we signed during the second quarter with the province of New Brunswick confirmed our long‑held belief that investment in brands, quality and scale coupled with investing in the people and communities we believe in across Canada would leave us well positioned to serve provincial supply needs. We are hopeful to see more and more provinces make similar decisions to pursue the most reliable, varied and high-quality products available in the sector. Starting with the twenty-seven provisional patents that have been filed to date, our research affiliate Canopy Health Innovations seeks to define the breakthrough cannabis-based medical therapies that we could commercialize globally. Our relationship with Constellation and the commitment to work together to develop and market regulated recreational cannabis-based beverages, when and where they are federally legal, is a critical step in our move up the value chain. Perhaps most importantly, we are strongly aligned in our cultures and our view that industry has a role to play in defining acceptable business practices as the cannabis industry exits prohibition. With investments and capacity offtake agreements in place with quality domestic production assets and several others in negotiation, our Canopy Rivers subsidiary is analyzing global investment opportunities, another reflection of the growing international scope of our business.”

Webcast and Conference Call Information

Canopy Growth will host a conference call and audio webcast with Bruce Linton, CEO and Tim Saunders, CFO at 8:30 AM Eastern Time today.

Webcast Information
A live audio webcast will be available at:
http://event.on24.com/r.htm?e=1533808&s=1&k=B7D2C24B3AB2588D21AC8934F19F8520

Calling Information
Toll Free Dial-In Number: 1-888-231-8191
International Dial-In Number (647) 427-7450
Conference ID: 7498308

Replay Information
A replay of the call will be accessible by telephone until 11:59 PM ET on February 13, 2018.
Toll Free Dial-in Number: 1-855-859-2056
Replay Password: 7498308