Canopy Growth tumbles 12% after reporting sales that missed the lowest forecast

Reuters

• Cannabis company Canopy Growth plunged 14% in early trading Thursday after missing its lowest revenue estimate for its fiscal first-quarter.
• The cannabis company reported a $1.28 billion loss for the quarter, with $1.2 billion of the hit coming from the extinguishing of warrants held by Constellation Brands after amending the two companies' Investor Rights Agreement. Constellation took a 38% stake in Canopy in October 2018.
• Canopy is expected to bolster its margins in coming quarters as processing and cultivation of its product reaches planned capacity, CEO Mark Zekulin said in the earnings report.
• Watch Canopy Growth trade live here.

Cannabis company Canopy Growth dropped as much as 14% in early Thursday after reporting revenue that came in below the lowest analyst estimate.

revealing a $1.2 billion

The company recorded a $1.28 billion total loss over the three-month period. That included a $1.2 billion quarterly charge related to a new investor agreement with Constellation Brands. It originated from warrants held by Constellation that were extinguished when the companies updated their Investor Rights Agreement.

Constellation took a 38% stake in Canopy in October 2018 and installed company veteran Mike Lee as the cannabis producer's CFO.

Here are the key numbers (in Canadian dollars):

Earnings per share: -$3.70, versus the -$0.428 estimate

Revenue: $90.5 million, versus the $111.12 million estimate

Medical dry cannabis revenue: $7.2 million, versus $18.4 million in the year-ago period

Medical cannabis oil revenue: $16.4 million, versus $6.3 million in the year-ago period

The report noted an increased focus on high-THC products to meet growing demand, as well as continued development of CBD products set to be released in 2020. Plans to increase margins and meet cultivation demands are on their way to execution, Canopy CEO Mark Zekulin said in the report.

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"Our recent harvests are proof that our focus on operational excellence is working, and we look forward to showing both our Canadian and U.S. customers what we've been working on behind the scenes to prepare for the next wave of products coming later this year," Canopy CEO Mark Zekulin said.

The company's previous earnings report fell under analyst expectations after the company attributed quarterly losses to investments in sales and marketing. Canopy boosted its spending on research and development of new products, both recreational and medical. It also faced increased compliance costs brought by new regulations from Health Canada.

Then-CEO Bruce Linton was ousted by the Canopy's board on July 3. The announcement led shares to slide more than 6%. Constellation Brands CEO Bill Newlands said the company "needed focus" and a different leader for its "next phase of growth" during a July 8 CNBC interview.

Cannabis competitor Tilray fell as much as 4% Tuesday after reporting better-than-expected revenue figures but missing profit expectations. Though Tilray was the first cannabis company to go public in the US, its stock is down about 79% from its September 2018 peaks.

Canopy Growth closed at $31.93 Wednesday, up about 18% year-to-date.

The company has 14 "buy" ratings, eight "hold" ratings, and no "sell" ratings from analysts, with a consensus price target of $51.08, according to Bloomberg data.

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