Full Press Release Details
Canopy Growth Reports Second Quarter Fiscal
2020 Financial Results
SMITHS FALLS, ON, Nov. 14, 2019 /CNW/ - Canopy
Growth Corporation ("Canopy Growth" or the "Company") (TSX: WEED) (NYSE: CGC) today announced its financial
results for the second quarter ended September 30, 2019. All financial information in this press release is reported in Canadian
dollars, unless otherwise indicated. This press release is intended to be read in conjunction with the Company's Condensed Interim
Consolidated Financial Statements and Management Discussion & Analysis for the three and six months ended September 30, 2019,
which will be filed on SEDAR (www.sedar.com) and will be available at www.canopygrowth.com.
Key highlights include:
The company has established leading market share across
the country including a noteworthy share of over 35% in Alberta, Canada's most developed provincial recreational market.
Consumer demand for cannabis continues to increase versus
Q1 2020 with Company-owned recreational same-store sales growth of 17% and global medical organic growth of 23%.
More than 30 SKUs submitted to Health Canada for Cannabis
2.0 products across chocolate, vapes, and beverage formats.
As part of a management-initiated portfolio review, the
Company has taken a restructuring charge of $32.7 million for returns, return provisions, and pricing allowances primarily related
to its softgel & oil portfolio. Additionally, management has recorded an inventory charge of $15.9 million to align the portfolio
with the new strategy. This new strategy includes new retail pricing architecture, a rationalized package assortment, and a focused
marketing/educational strategy to further develop this category. The Q2 2020 gross margin impact of the portfolio restructuring
costs is $40.4 million. With this acute restructuring charge, management believes that current inventory levels both internally
and externally are in-line with demand forecasts.
Consolidated Q2 2020 gross revenue, excluding the portfolio
restructuring costs, was up 6% to $118.3 million including increases from full-quarter benefits of the C3 and ThisWorks acquisitions
(flat excluding incremental revenue from acquisitions). Net of the portfolio restructuring costs, revenue was $76.6 million, a
decrease of 15% over Q1 2020.
Cannabis gross revenues for Q2 2020, excluding the portfolio
restructuring costs, was $94.7 million, an increase of 2% over Q1 2020.
The Company ended Q2 2020 with $2.7 billion in cash and
cash equivalents and marketable securities available for sale, with its Canadian Infrastructure and global M&A programs substantially
Management Commentary
"The last two quarters have been challenging
for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen
short of expectations, and Cannabis 2.0 products are yet to come to market," said Mark Zekulin, CEO, Canopy Growth. "However,
we believe these conditions are a short-term headwind in what is a brand-new industry, and Canopy continues to be best positioned
with cash-on-hand, a world-class infrastructure, and a portfolio of intellectual property to deliver sustained, long-term market
Added Zekulin: "We took the necessary
steps to address inventory levels on our oils and softgels; looking beyond this, the fundamentals are strong: our retail store
sales are growing on an overall and same-store basis, our Canadian medical revenues are up, and international medical sales are
growing on both an organic and inorganic basis. And, even though revenue is muted during the quarter due to the restructuring
charge, actual cannabis shipments grew quarter-over-quarter, which is a great accomplishment in light of the inventory reset that's
occurring at the provinces. We believe our fundamentals are strong and are confident we're moving in the right direction."
"After five years of investment in market
research, product development, product marketing, production engineering, as well as production facility design, construction and
qualification, we are ready to bring our Cannabis 2.0 product offerings to market," said Zekulin. "This marks the
end of significant expansion investments in Canada and we are confident that the high quality, differentiated beverage, vape and
edible products that we are bringing to market combined with a retail channel that we expect to grow significantly next fiscal
year, will drive the next leg of growth for our business."
| Second Quarter Fiscal 2020 Financial and Operational Summary | |||||
| (CDN millions, except where indicated) | Q2 2020 | Q1 2020 | % Change | Q2 2019 | % Change |
| (Restated 1 ) | (Restated 1 ) | ||||
| Gross revenue excluding other revenue adjustments | $118.3 | $111.4 | 6% | $23.3 | 408% |
| Other revenue adjustments 2 | $32.7 | $8.0 | 309% | $- | NM |
| Excise taxes | $9.0 | $12.9 | -30% | $- | NM |
| Net revenue 3 | $76.6 | $90.5 | -15% | $23.3 | 229% |
| Gross margin percentage, before fair value impacts in cost of sales 4 | -13% | 19% | -32% | 33% | -46% |
| Operating expenses 5 | $269.4 | $233.3 | 15% | $181.8 | 48% |
| Adjusted EBITDA 6 | $(155.7) | $(92.0) | 69% | $(61.9) | 152% |
| Attributed as follows: | |||||
| - Operations and corporate overhead | $(109.0) | $(57.8) | 89% | $(50.6) | 115% |
| - Strategic investments and business development | $(36.2) | $(18.0) | 101% | $(4.3) | 742% |
| - Non-operating or under-utilized facilities | $(10.5) | $(16.2) | -35% | $(7.0) | 50% |
| Net loss | $(374.6) | $(1,281.2) | -71% | $(330.6) | 13% |
| Loss on extinguishment of warrants 7 | $- | $(1,176.4) | -100% | $- | NM |
| Kilograms harvested (kilograms) | 40,570 | 40,960 | -1% | 15,217 | 167% |
| (CDN millions, except where indicated) | Q2 2020 | Q1 2020 | % Change | Q4 2019 | % Change |
| Cash, cash equivalents and marketable securities | $2,736.2 | $3,140.9 | -13% | $4,515.0 | -39% |
| Inventory | $461.8 | $393.7 | 17% | $262.1 | 76% |
| NM = Not Meaningful | |||||
| 1 Refer to Note 2(d) of the Interim Financial Statements for further details on the impact of the change in accounting policy with respect to royalty payments in the three months ended September 30, 2019. | |||||
| 2 Other revenue adjustments represent the Company's determination of returns and pricing adjustments, and which primarily relate to oils and softgels. | |||||
| 3 Includes other revenue adjustments, and the impact from other revenue adjustments on excise taxes. | |||||
| 4 Gross margin percentage, before fair value impacts in cost of sales, is a non-IFRS measure. See "Non-IFRS Measures" below. | |||||
| 5 Includes share-based compensation expense and depreciation and amortization, both of which are non-cash expenses. | |||||
| 6 Adjusted EBITDA is a non-IFRS measure. See "Non-IFRS Measures" below. | |||||
| 7 Relates to a non-cash loss on the extinguishment of warrants held by Constellation upon the amendment of the Investor Rights Agreement between Canopy Growth and Constellation. |
| Second Quarter Fiscal 2020 Revenue Highlights | |||||
| (CDN millions, except where indicated) | Q2 2020 | Q1 2020 | % Change | Q2 2019 | % Change |
| Canadian recreational cannabis | |||||
| - Business to business 1 | $49.4 | $58.4 | -15% | $- | NM |
| Canadian recreational cannabis | |||||
| - Business to consumer | $13.1 | $10.6 | 24% | $- | NM |
| Canadian medical cannabis | $14.1 | $13.1 | 8% | $19.9 | -29% |
| Canadian cannabis | $76.6 | $82.1 | -7% | $19.9 | 285% |
| International medical cannabis | $18.1 | $10.5 | 72% | $2.2 | 723% |
| Cannabis gross revenue excluding other revenue adjustments | $94.7 | $92.6 | 2% | $22.1 | 329% |
| Other revenue | $23.6 | $18.8 | 26% | $1.2 | 1867% |
| Gross revenue excluding other revenue adjustments | $118.3 | $111.4 | 6% | $23.3 | 408% |
| Other revenue adjustments 2 | $32.7 | $8.0 | 309% | $- | NM |
| Excise taxes 3 | $9.0 | $12.9 | -30% | $- | NM |
| Net revenue | $76.6 | $90.5 | -15% | $23.3 | 229% |
| 1 Excludes the impact of other revenue adjustments. | |||||
| 2 Other revenue adjustments represent the Company's determination of returns and pricing adjustments, and which primarily relate to oils and softgels. | |||||
| 3 Excise taxes is presented net of the impact from other revenue adjustments. |
| Second Quarter Fiscal 2020 Product Sales Highlights | |||||
| (CDN millions, except where indicated) | Q2 2020 | Q1 2020 | % Change | Q2 2019 | % Change |
| Recreational - Business to business | |||||
| Dry cannabis sales (kilograms) | 7,497 | 6,881 | 9% | - | NM |
| Dry cannabis revenue | $47.4 | $51.5 | -8% | $- | NM |
| Cannabis oil and softgels sales (kilogram equivalents) | 259 | 1,288 | -80% | - | NM |
| Cannabis oil and softgels revenue excluding other revenue adjustments | $2.0 | $6.9 | -71% | $- | NM |
| Other revenue adjustments 1 | $(32.7) | $(8.0) | 309% | $- | NM |
| Recreational - Business to consumer | |||||
| Dry cannabis sales (kilograms) | 1,064 | 792 | 34% | - | NM |
| Dry cannabis revenue | $11.6 | $9.3 | 25% | $- | NM |
| Cannabis oil and softgels sales (kilogram equivalents) | 98 | 99 | -1% | - | NM |
| Cannabis oil and softgels revenue | $1.5 | $1.3 | 15% | $- | NM |
| Medical | |||||
| Dry cannabis sales (kilograms) | 998 | 807 | 24% | 1,698 | -41% |
| Dry cannabis revenue | $9.6 | $7.2 | 33% | $14.7 | -35% |
| Cannabis oil and softgels sales (kilogram equivalents) | 997 | 682 | 46% | 499 | 100% |
| Cannabis oil and softgels revenue | $22.6 | $16.4 | 38% | $7.4 | 205% |
| 1 Other revenue adjustments represent the Company's determination of returns and pricing adjustments, and which primarily relate to oils and softgels. |
We sold 10,913 kilograms and kilogram equivalents
of cannabis products during Q2 2020, an increase of 3% from the previous quarter. Total gross revenue for Q2 2020, before portfolio
restructuring costs, was $118.3 million.
Gross revenue of $32.2 million was generated
in the medical channel in Q2 2020, as sales increased 34% from the previous quarter to 1,995 kilogram and kilogram equivalents.
Oils and softgels represented 50% of our medical sales during the quarter. Canadian medical cannabis gross revenue increased 8%
from Q1 2020 to $14.1 million in Q2 2020, as our larger harvests in recent months, the broadening of our brand and product offerings
for our medical customers, and an increase in the number of patients registered with Spectrum Therapeutics to 75,600 at September
30, 2019 have resulted in sequential improvements in the number of orders placed by our customers and growth in our revenue during
International medical cannabis gross revenue
was $18.1 million in Q2 2020, with the 72% growth driven primarily by the acquisition in May 2019 of C3, which contributed
a full quarter of revenue in the amount of $14.0 million to our results in Q2 2020. Additionally, our German medical business returned
to growth in Q2 2020 as we resolved the supply constraints experienced in previous quarters which led to notable shipments to Germany
in July and early August 2019. Cannabis now on hand today in our German facility and held in inventory by German pharmacy
customers may serve the partial needs of Q3 2020. While management is very confident in the sustained growth of the German market
over the long term, management does not expect this level of growth to repeat in Q3 2020.
Gross revenue from the Canadian recreational
channel in Q2 2020 was $29.8 million and reflects portfolio restructuring costs of $32.7 million. Revenue of $13.1 million was
generated in the business-to-consumer retail channel, representing sequential growth of 24% from the previous quarter as we continue
to build-out our retail store platform across Canada. At the time of this release we have 27 retail stores open across Canada,
operating under the Tweed or Tokyo Smoke banner. Gross revenue from the business-to-business channel was $16.7 million, reflecting
the portfolio restructuring costs as described above. Solid product inventory levels at Canopy in the second half of the quarter,
supplied by our large harvest in the first quarter, helped drive strong shipment velocities of dried flower and pre-rolled joints
across our Canadian recreational channels. This resulted in dried bud shipments up 12% quarter over quarter. Revenue from the sale
of our dry bud products was $59.0 million in Q2 2020 and included revenue of $7.8 million on sales 1.2 million higher-margin pre-rolled
Other revenue was $23.6 million in Q2 2020,
an increase from $18.8 million in the previous quarter which was attributable to the acquisition of This Works, which contributed
a full quarter of revenue in Q2 2020, and revenue from other strategic sources including extraction services and clinic partners.
Second Quarter Fiscal 2020 Gross Margin
(before the fair value impacts in cost of sales) Overview (See Non-IFRS Measures)
Our reported gross margin before fair value
impacts in cost of sales was negative 13% of net revenue in Q2 2020. Gross margin before fair value impacts in cost of sales
was 38% for Q2 2020 when adjusted for the following items: (1) operating costs of $10.5 million relating to facilities that were
not yet cultivating cannabis, were under-utilized, or were not yet producing cannabis-related products, (2) the impact of $9.2
million on gross margin of the portfolio restructuring costs, as described above, (3) a charge for excess finished recreational
cannabis inventory of $15.9 million resulting from our assessment of current and forecasted "sell-in" rates of certain
oil and softgel products, as described above, and (4) other adjustments related to the net realizable value of inventory.
We continue to build high-quality, dried flower
inventory that we believe will be necessary to meet the increased demand that will be generated by growth in the recreational cannabis
retail platform across Canada over the next 12 to 18 months, particularly in the province of Ontario. As the Company nears completion
of its expansion program in Canada, we expect our gross margins to continue to improve in the coming quarters when all of the cultivation
and processing are in use and approaching planned capacity.
| Second Quarter Fiscal 2020 Operating Expense Summary | |||||
| (CDN millions, except where indicated) | Q2 2020 | Q1 2020 | % Change | Q2 2019 | % Change |
| (Restated 1 ) | (Restated 1 ) | ||||
| Sales and marketing | $60.5 | $49.2 | 23% | $40.2 | 50% |
| Research and development | $11.9 | $8.5 | 40% | $1.9 | 526% |
| General and administration | $87.9 | $62.3 | 41% | $37.1 | 137% |
| Acquisition-related costs | $2.6 | $13.2 | -80% | $3.2 | -19% |
| Share-based compensation expense 2 | $92.9 | $87.3 | 6% | $95.8 | -3% |
| Depreciation and amortization 2 | $13.6 | $12.8 | 6% | $3.6 | 278% |
| Total | $269.4 | $233.3 | 15% | $181.8 | 48% |
| 1 Refer to Note 2(d) of the Interim Financial Statements for further details on the impact of the change in accounting policy with respect to royalty payments in the three months ended September 30, 2019. | |||||
| 2 Share-based compensation expense and depreciation and amortization are non-cash expenses. |
The increase in sales and marketing expense
in Q2 2020 over the previous quarter was primarily due to pre-revenue investments in brand awareness, product marketing and consumer
education initiatives focused on preparation for the launch of our Cannabis 2.0 products in Canada, and the rollout of CBD products
in the United States and other international markets in the coming months. Staffing costs also increased as we continue to enhance
our marketing and sales capabilities in the Canadian, United States, and international markets, and as we build-out our network
of Tweed and Tokyo Smoke-branded retail stores in Canada.