The world's leading medical marijuana company, Canopy Growth (NYSE: CGC) just revealed the fourth quarter's finances, and the notion confirms its status as a top dog in this new industry. The results are particularly important because they include the first six weeks of sales from Canada's new marijuana leisure market. Before buying shares in this top cannabis company, here's what you should know.
1. Still the Great Kahuna
When Top Competitor Aurora Cannabis (NYSE: ACB) reported quarterly results earlier this week, it said it had a recreational market share of 20% and that recreational revenue was 21
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Revenues of $ 83 million were 54% higher than Aurora Cannabis' haul. In the past, Canopy Growth estimated its medical market share to exceed 30%, and it appears to be performing even better in the recreational market. Using Aurora Cannabis 20% Recreational Market Share and its CA $ 21.6 in Recreational Sales, we can estimate total recreational sales were somewhere around $ 108 million. Canopy Growth's recreation turnover was US $ 57.7 million, so with that backdrop math math, there was a large proportion of the estimated market for adult use last year.
2. Product mix is better
In the same quarter last year, Canopy Growth sold 2,330 kilograms of marijuana. In Q4, it sold 10,102 kilos – an increase of 335%.
Most importantly, there was a lot of marijuana it sold, as products with high margin. In particular, oils and soft gels accounted for 33% turnover in the period, up from 23% last year. In the medical marijuana market, these products represented 42% of sales. They accounted for 30% of the recreational market revenue.
Increasing revenue from oils and soft gels, as well as the ability to sell vapes, beverages, and edibles in Canada at some point, should help improve gross margins. After adjustments for non-cultivated subsidiaries and tax quotas, the gross margin was 40% last year. It's low compared to peers, but Canopy Growth believes that as new facilities ramp to scale and value-added products launch, the margin will evolve over time. By comparison, the Aurora Cannabis gross margin was 54% in the last quarter.
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3. US strategy remains on track
In January, Canopy Growth announced that it had been licensed to process port products in the New York state. It plans to invest up to $ 150 million to become an anchor owner in a hemp-focused industrial park in a location to be determined. In the earnings conference, the company called investors that it has identified the location of this industrial park and negotiations are ongoing.
The management is not betting on what could be the first hemp-derived products to be launched in New York, but they suggested that pet and human health and wellness products be targeted and that, if everything goes as planned, The first of these products may be available in New York by the end of 2019 or the first quarter of 2020.
As far as plans to expand to other US states, CEO Bruce Linton said at the conference call with investors it will be "sooner than later" , but he added, "It will depend on politics."
Todd Campbell has no position in any of the aforementioned shares. His clients may have positions in the aforementioned companies. Motley Fool has no position in any of the aforementioned shares. Motley Fool has a disclosure policy.
