Canopy Growth Corporation (TSX: WEED) (TWMJF) today released its consolidated financial results for the second quarter ended September 30, 2017. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
Subsequent to quarter end, Canopy Growth entered into a strategic relationship with Fortune 500 global beverage leader Constellation Brands (“Constellation”). As part of the agreement, an affiliate of Constellation has invested approximately $245 million in Canopy Growth in exchange for 9.9% equity in the Company and the parties have agreed to collaborate on new product development.
Second Quarter 2018 Highlights
Second quarter revenue was $17.6 million, a 107% increase over the second quarter ended September 30, 2016 when revenue totaled $8.5 million, and an 11% increase over first quarter of fiscal 2018 revenues of $15.9 million. Revenue in the six months ended September 30, 2017 totaled $33.4 million, more than double as compared to $15.5 million in the same period last year.
Sold 2,020 kilograms and kilogram equivalents; a 73% increase over second quarter fiscal 2017, and a 10% increase over first quarter 2018 when 1,830 kilograms and kilogram equivalents were sold.
The weighted average cost per gram1 before shipping and fulfillment was $1.25 per gram as compared to $1.27 per gram in the first quarter of fiscal 2018 and $1.70per gram in the second quarter of fiscal 2017. 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.
Year-to-date, the Company 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 in the six months ended September 30, 2016.
The second quarter of fiscal 2018 gross margin2 before the fair value effects of the IFRS accounting for biological assets and inventory was $10.1 million or 57% of sales, as compared to $5.1 million or 60% of sales in the second quarter of last year. Excluding the effects of non-cultivating subsidiaries and other period costs totaling $1.8 million, the gross margin in the second quarter of fiscal 2018 before the IFRS fair value impacts would have been $11.9 million or 68% of sales.
Adjusted EBITDA3 in the second quarter of fiscal 2018 amounted to a loss of $6.2 million compared to an Adjusted EBITDA loss of $1.9 million in the comparative quarter last year.
Net loss in the second quarter of fiscal 2018 of $1.6 million, or $0.01 per basic and diluted share, compared to net earnings of $5.4 million or $0.05 per basic and diluted share in the second quarter of fiscal 2017. 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 Company’s global leadership position heading into next year.
Inventory at September 30, 2017 amounted to $73.8 million and biological assets amounted to $23.5 million, together totaling $97.3 million. With its store stocked with a sector leading 40 varieties to serve medical patients, the Company has begun to actively scale inventories to meet expected future market demand, and to ensure that appropriate inventories exist to meet the needs of new cannabis retailers in the regulated recreational market.
On September 21, 2017, Canopy Growth announced that it had 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, 2017, the Company and its wholly-owned subsidiary Spektrum Cannabis GmbH (“Spektrum”) announced a supply license agreement with Spain’sAlcaliber, S.A. (“Alcaliber”). Per the supply license agreement, Canopy Growth and Spektrum granted Alcaliber a licence to use certain strains and seeds to be grown and cultivated at Alcaliber’s facilities for sale worldwide.
On September 8, 2017, the Company announced construction of a new 212,000 sq. ft. greenhouse and the purchase of a neighbouring 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.
$108.2 million in cash and cash equivalents at quarter end prior to the infusion of approximately $245 million from the Constellation investment that closed on November 2, 2017.
Subsequent to Second Quarter 2018
On October 11, 2017, Canopy Growth announced that it had entered into 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, 2017, 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 (“Tweed JA”), will serve the needs of the Jamaican medical cannabis market. Canopy Growth holds 49 per cent of the share capital of Tweed JA, which, with conditional license approvals already in place, has already begun construction of its facility.
