If there were questions about which company is the dominant player in the Canadian marijuana industry, it should now be decided. Canopy Growth (NYSE: CGC) reported third quarter results Thursday night and the big marijuana manufacturer is clearly leader.
This was a hugely important quarter for Canopy, as it was the first time the company reported sales from the newly opened Canadian marijuana recreational market. The Canopy Headline Income Number was great, but digging into their results revealed even more great news. Here are five things you really want to know from Canopy sizzling Q3.
1. Ginorm revenue growth
All expected Canopy Growth will report tremendous growth in revenue in Q3. And that was exactly what the company did.
Canopy recorded net sales of $ 83 million in Canadian dollars, which is about USD 62 million in US dollars. This reflected a ginorm increase of 283% last year. Compared with the previous quarter, nearly as impressive, with Canopy's net income rising 256% in the second quarter.
Analysts had been optimistic about Canopy's performance, but reality turned out to be even better than they had expected. The consensus revenue estimate for Q3 was $ 81.1 million, according to analysts surveyed by FactSet, nearly $ 2 million under Canopy's actual performance.
2. An Upcoming Recreational Market Share in Canada
Aurora Cannabis (NYSE: ACB) beat Canopy to the punch earlier this week by reporting the quarterly results on December 31, 2018. Aurora announced it captured a market share on around 20% in the Canadian recreational market. Sounds good, right? Just wait.
Canopy Growth did not include any market share information in the government's Q3 filing. However, we can get a pretty good idea of the company's market share by comparing recreation sales to Aurora.
Aurora reported recreational potential sales of $ 21.6 million. Canopy blew that number out of the water with $ 57.7 million recreational revenue. A small number of crunches indicate that Canopy had a coming market share of more than 50%.
3. Impressive international sales growth
In the second quarter, Canopy's international sales growth was lacking. European medical sales of cannabis increased by only 1.8% over the previous quarter. Canopy Growth, CEO Bruce Linton, said in the company's Q2 conference that there were "a few hiccups in getting the normal course to Germany."
There were no hiccups in the third quarter. Canopy reported international sales of $ 2.7 million (around $ 2 million), an increase of 173% year-on-year. In Q2, international sales accounted for about 10% of total revenues, which at that time consisted almost exclusively of medical sales of cannabis. Canopy said that international sales generated 16% of the total cannabis hospital in the third quarter, up from 5% from the previous year.
Most of Canopy's international revenue comes from the subsidiary Spektrum Cannabis in Germany. The company reported that 204 kg of medical cannabis was sold in Q3 in Germany at an average price of $ 13.28 per gram. In the second quarter, 164 kg of medical cannabis was sold in Germany at an average price of $ 13.58 per gram.
4. A Surprising Profit – With One Star
Having posted their biggest loss ever in Q2, Canopy Growth broke back in Q3 with a surprising surplus of US $ 74.9 million, or $ 0.22 per share ( USD 0.17 per share). But just as the Q2 loss came with a star, Canopy made Q3 profits.
The only reason the company could report positive earnings was due to changes in fair value of financial liabilities. In particular, the fair value of Canopy's senior convertible notes significantly reduced. Without the effect of this accounting requirement, the company would have had a net loss of $ 121 million, or about $ 0.32 per share ($ 0.24 per share).
5. The Biggest Money in the Industry
No company in the Canadian marijuana industry can touch Canopy Growth in cash. The company announced it had cash, cash equivalents and transferable securities totaling $ 4.9 million (around $ 3.7 million) as of December 31, 2018.
Guessing where the money comes from is not difficult. Constellation Brands (NYSE: STZ) Investment of $ 4 billion in Canopy last year gave the manufacturer a large amount of money to use for financing transactions and expansion. Canopy has already begun to spend this money and recently announced plans to build a large hemp production facility in New York State.
Canopy's performance in future quarters should only improve. Remember that the company did not have a full quarterly recreation pot sale in the third quarter. Add to that the notion that Canopy only started sending its high-quality softgel capsules at the end of the quarter. Gross margins are likely to improve as Canopy's cultivation plant is fully exploited.
There is also a large new market on the way in Canada, as the country is expected to allow the sale of cannabis-infected foods and beverages later this year. The US also has new potential now that hemp is legal.
Linton stated that "sales from the first wave of products and retail environments launched in the third quarter show that we take care of the consumer's attention." He is right. And as Canopy continues to burn on all cylinders ahead, it's likely to catch even more attention from investors as well.