Full Press Release Details
Canopy Growth Corporation Reports Third
Quarter Fiscal 2019 Financial Results: Gross Sales of $98M; Net Revenue hits record $83M
Cannabis shipments totaled 10,102 kilograms and kilogram
Net income of $74.9 million, including changes in fair
values of financial liabilities included in Other Income.
Closed the previously announced $5 billion investment
by Constellation Brands Inc and began putting that capital to work for shareholders with key acquisitions of Storz & Bickel
and the assets of ebbu Inc.
Expanded to new markets including United Kingdom and
Peru, and announced intention to establish operations in New York State, marking the Company's entry into the US hemp market.
Intellectual property portfolio grew to 32 issued patents
and over 140 patent applications, covering a range of target areas from technology to genetics to clinical formulations.
SMITHS FALLS, ON, Feb. 14, 2019 /CNW/ - Canopy
Growth Corporation (TSX: WEED) (NYSE: CGC) ("Canopy Growth" or "the Company") today released its consolidated
financial results for the third quarter fiscal 2019 ended December 31, 2018. All financial information in this press release
is reported in Canadian dollars, unless otherwise indicated.
| Third Quarter Fiscal 2019 Operational and Financial Highlights | |||
| Q3 2019 | Q3 2018 | % Change | |
| Net revenue (millions) | $83.0 | $21.7 | 282% |
| Kilograms and kilogram equivalents sold | 10,102 | 2,330 | 334% |
| Average Selling Price per gram - Recreational | $6.96 | - | NM |
| Average Selling Price per gram - Canadian Medical | $9.77 | $8.21 | 19% |
| Average Selling Price per gram - International Medical | $13.28 | $12.61 | 5% |
| Average Selling Price per gram | $7.33 | $8.30 | -12% |
| Inventory & Biological Assets (millions) | $216 | $108 | 100% |
| Kilograms harvested (kilograms) | 7,556 | 7,961 | -5% |
| Cash, cash equivalents and marketable securities (millions) | $4,915 | $429 | 1046% |
| NM = Not Meaningful |
| Third Quarter Fiscal 2019 Revenue Highlights | |||
| Q3 2019 | Q3 2018 | % Change | |
| Canadian Recreational Cannabis Gross Revenue - Business to Business | $60.1 | - | NM |
| Canadian Recreational Cannabis Gross Revenue - Business to Consumer | $11.5 | - | NM |
| Canadian Recreational Cannabis Revenue - Subtotal | $71.6 | - | NM |
| Canadian Medical Cannabis Gross Revenue | $15.9 | $19.3 | -18% |
| International Medical Cannabis Gross Revenue | $2.7 | $1.0 | 170% |
| Medical Revenue - Subtotal | $18.6 | $20.3 | -8% |
| Other Revenue | $7.5 | $1.4 | 436% |
| Total Gross Revenue | $97.7 | $21.7 | 350% |
| Less Excise Taxes | $14.7 | - | NM |
| Net Revenue | $83.0 | $21.7 | 282% |
| NM = Not Meaningful |
| Third Quarter Fiscal 2019 Product Sales Highlights | |||
| Product Sales (Kilograms & kilogram equivalents) | Q3 2019 | Q3 2018 | % Change |
| Canadian Recreational Cannabis - Business to Business | 7,381 | 0 | NM |
| Canadian Recreational Cannabis - Business to Consumer | 906 | 0 | NM |
| Canadian Medical Cannabis | 1,611 | 2,254 | -29% |
| International Medical Cannabis | 204 | 76 | 168% |
| Total | 10,102 | 2,330 | 334% |
| NM = Not Meaningful |
Management Commentary
"Our successful first full quarter with
recreational sales in Canada reinforces our long held strategy of making meaningful investments early in order to secure market
share," said Bruce Linton, Chairman & Co-CEO, Canopy Growth. "With a strong cash position, we added strategic assets
and IP through acquisitions to accelerate the sophistication of our inputs with ebbu, and our consumer-facing outputs with Storz
"The Canadian recreational cannabis market
will be dominated in the long term by businesses delivering excellent products and consumer experiences. Sales from the first wave
of products and retail environments launched in the third quarter demonstrate that we are capturing consumers' attention."
Concluded Linton, "We have developed an
unprecedented and unparalleled fully integrated platform at scale and will continue to expand by making strategic production investments
in regions with federally permissible paths to market for our cannabis and hemp offerings. We believe this strategy will develop
a significant and sustained return on invested capital over the long-term."
Product & Production Summary
Oils, including the Company's Softgel capsules,
accounted for 33% of product revenue (reported net revenue excluding other revenue) in the three months ended December 31, 2018,
up from 23% of product revenue in the same period last year, demonstrating an increased demand for value-added formats. During
the third quarter of fiscal 2019, approximately 30% and 42% of recreational and medical sales, respectively, were comprised of
oils, including Softgel capsules.
To position Canopy Growth to supply the significant
quantities of cannabis oil that the Company expects will be required to meet the needs of future value added products including
vape pens and beverages, the Company took steps during the quarter to augment its owned current and planned extraction capacity
by entering into extraction supply related agreements with Valens GroWorks Corp., Medipharm Labs Corp., and POS Holdings Inc. ("POS
Holdings"). In addition, during the quarter, the Company completed the terms of a financing related agreement with POS
Holdings to lock in dedicated extraction support to Canopy Growth.
In the transition from a "medical marijuana"
business to a business producing clinically proven cannabinoid therapies, the Company experienced a decline in its Canadian medical
market demand in the quarter. The decline may be attributed to the initial adjustment to the available legal recreational market
which patients can also access. Additionally, medical revenues reflected a migration to a tighter medical product range as
well as elevating and re-focusing Spectrum Cannabis to a more pure medical/pharma focused brand proposition.
International medical revenues in the three
months ended December 31, 2018, consisting primarily of sales in Germany, increased by 170 percent over the same quarter in the
prior year to $2.7 million.
Other revenue for the quarter was $7.5 million,
coming from partner clinic revenue, merchandise sales, and device sales by the Company's wholly-owned subsidiary Storz & Bickel
following the close of its acquisition on December 6, 2018.
Canadian Regulated Adult Use Market -
The Company placed significant focus on shipping
core products, backed by deep inventory levels, into physical retail store networks across the country. In the face of strong
product demand and overall sector supply shortages, the inventory levels have served to improve the availability of the Company's
products on retail store shelves. Also, at the end of the quarter, the Company began shipping value-added Softgel capsules
and pre-rolled joint products in recreational channels across the country.
Canadian Regulated Adult Use Market -
Canopy Growth finalized its acquisition of
HIKU during the second quarter, adding the Tokyo Smoke retail channel to complement its Tweed banner stores. Offering two distinct
customer experiences will allow the Company to appeal to various consumer demographics without saturating any single segment. Tokyo
Smoke operates four corporate owned retail cannabis stores and an e-commerce platform in Manitoba. Tweed retail now has 10 corporate
owned locations selling cannabis across Newfoundland & Labrador and Manitoba, plus a licensed store in Saskatchewan and an
e-commerce presence in Manitoba and Nunavut. The Company plans to add, in provinces with private retail models, 20 additional
Tweed stores and 20 additional Tokyo Smoke stores. In the province of Ontario, the company is exploring partnership opportunities
to ensure consumers in that market can experience the distinct Tweed and Tokyo Smoke retail experiences while working within the
provincial framework.
Third Quarter Fiscal 2019 Gross Margin1 Summary
The Company is in the final stages of completing
its Canadian production and extraction platform. The cost of sales includes the impact of operating costs of cannabis cultivation
subsidiaries not fully commissioned, including our Delta greenhouse and a number of zones at the Aldergrove greenhouse facility,
both going through fit-ups, as well as Edmonton and Fredericton, also in construction during the quarter. Vert Mirabel also initiated
its first pilot grow cycle, which combined with the other non-producing assets to result in higher non-recurring overheads. Cost
of sales also included costs associated with developing edible and beverage products for which markets will be available later
in calendar 2019. Excluding the costs associated with these non-cultivating subsidiaries totaling approximately $13.1 million and
absorbing medical excise taxes of $2.1 million in order to ease the burden imposed on patients, the gross margin2 before
the fair value impacts in cost of sales and other inventory charges would have been $33.5 million or 40% of sales. Gross margin
was also impacted by lower average recreational business to business prices, as compared to historic direct to consumer medical
Greenhouse facilities operate in zones. Aldergrove,
Delta and Mirabel have been planted in a manner that allows for ongoing harvests, rather than one large harvest, to increase the
utilization of assets such as post harvest processes and provide for a steady supply of product going forward. The Aldergrove
greenhouse began its third harvest earlier in the current quarter and the Delta facility is expected to begin its next harvest
later in the current quarter.
The Company believes gross margins will expand
in the coming quarters when all of its cultivation facilities reach full utilization and cycle through initial pilot harvests to
be high performing assets. In addition, margins are expected to expand when edibles and beverages are introduced later in
calendar 2019 with lower costs of active ingredients per serving.
Third Quarter Fiscal 2019 Operating Expense
| Three months ended | ||||||||
| December 31, 2018 | As a % of Net Revenue | December 31, 2017 | As a % of Net Revenue | |||||
| (CDN $000's) | ||||||||
| Operating Expenses | ||||||||
| Sales and marketing | $ | 44,895 | 54% | $ | 9,409 | 43% | ||
| Research and development | 5,264 | 6% | 287 | 1% | ||||
| General and administration | 46,088 | 55% | 11,050 | 51% | ||||
| Acquisition-related costs | 4,520 | 5% | 790 | 4% | ||||
| Share-based compensation expense | 63,911 | 77% | 17,879 | 82% | ||||
| Depreciation and amortization | 5,015 | 6% | 3,147 | 15% | ||||
| Total operating expenses | $ | 169,693 | $ | 42,562 | ||||
| Nine months ended | ||||||||
| December 31, 2018 | As a % of Net Revenue | December 31, 2017 | As a % of Net Revenue | |||||
| (CDN $000's) | ||||||||
| Operating Expenses | ||||||||
| Sales and marketing | $ | 101,208 | 77% | $ | 23,452 | 43% | ||
| Research and development | 7,964 | 6% | 914 | 2% | ||||
| General and administration | 102,777 | 78% | 26,936 | 49% | ||||
| Acquisition-related costs | 9,606 | 7% | 2,491 | 5% | ||||
| Share-based compensation expense | 189,833 | 143% | 28,936 | 52% | ||||
| Depreciation and amortization | 11,640 | 9% | 9,974 | 18% | ||||
| Total operating expenses | $ | 423,028 | $ | 92,703 |
Businesses built on top quality product and
customer service require upfront investment. Management believes foundational investment is required to build the Company's significant
and diversified production platform, flexible distribution capability, world-leading brands, retail capabilities, medical and recreational
sales and customer support capabilities. Canopy Growth also requires robust information technology infrastructure, international
business development and operations. These investments directly impacted profitability in the quarter but represent prudent long
term investments to strengthen the Company's global leadership position. Both sales and marketing and general and administrative
expenses were up significantly relative to the same period last year. Management expects these expenses to level off in the
near term in its Canadian operations.