Canada's two largest cannabis companies presented their quarterly results this week and the results show that Canopy Growth (NYSE: CGC) and Aurora Cannabis (NYSE: ACB) Stays locked in a fight to dominate what could become a $ 200 billion marketplace one day. Quarterly reports are particularly important because they give investors the first glimpse of how recreational marijuana use can affect future sales and profitability. Let's take a closer look to see which of these companies are getting the most out of this exciting market.
. Strengthening production
Investors attach great importance to planned annual production capacity of marijuana, but the number that really matters is how many kilograms of product each of these companies push out the warehouse door every quarter.
Canopy Growth has linked its market share of medical marijuana over 30% earlier, making it Canada's leading medical marijuana supplier. But Aurora Cannabis has got competitors like crazy, and it has a sip on Canopy Growth's heels. But Aurora Cannabis splashy acquisition of CannaMed and MedReleaf last year was not enough to allow it to sell as much marijuana as Canopy Growth when Canada's recreational market opened on 17 October.
In the quarter, Canopy Growth remained king, selling 10,102 kilograms of marijuana and marijuana equivalent products, including oils, while Aurora Cannabis sold nearly 7,000 kilos. While Canopy Growth retains its title as the largest of the two when it comes to selling the product, it's hard to beat the 502% increase this year to Aurora Growth. The two companies are plowing both big money into their adult facilities to increase yield, but it's too early to say that Aurora Cannabis can close the gap.
|Company||Kilograms sold, last quarter||Kilograms sold, quarterly quarter||Change in year over year|
|Canopy Growth||] 10,102||2,330||334%||] Aurora Cannabis||6,999||1.162||502%|
2. Sizzling-hot sales
The increase both companies have seen in kilos sold means that each of them delivered a significant top-line sales growth in the quarter. What is worth looking at, however, is pricing power and product mix, because it may be what sets these two stocks apart in the future.
Canopy Growth's net sales, having played out fees, jumped 282% year-on-year to $ 83 million in Canada's last quarter, giving it an annual sales rate of $ 332 million. Meanwhile, net sales to Aurora Cannabis increased 363% to $ 54.2 million due to their acquisitions, giving it an annual $ 216 million interest rate.
Aurora Cannabis grew faster, but sales prices per gram fell more than Canopy Growth in the past year. Aurora Cannabis did not reveal its overall average price per gram, but with dried cannabis and extract prices falling more than 20% over the period, it is safe to assume a 20% fall over all products sold.
One reason why Canopy Growth's prices may have remained better than Auror's last quarter is product mix. Higher-priced extracts, including oils and softgels, accounted for 33% of Canopy Growth's revenue last year, up from 23% in the same quarter last year. At Aurora Cannabis, oils and extract sales were only 22% of net sales last year.
As more dried cannabis becomes available due to industrial investment in growth capacity, it will become increasingly important for these companies to increase sales of value added products that increase pricing.  Advantage: Canopy Growth
|Company||Net income, last quarter||Net income, quarterly last year||The turn of the year|
|Canopy Growth||$ 83.0||$ 21.7||282%|
|Aurora Cannabis||] $ 54.2||$ 11.7||363%|
|Company / product||Sales price per gram, last quarter||Sales price per gram, last year||Year-end|
|Aurora Cannabis, dried cannabis||$ 6.23||$ 7.86||(21%)|
|Aurora Cannabis, extracts||$ 10.00||$ 13.35||(25%)|
|Canopy Growth, average||] $ 7.33||$ 8.30||( 12%)|
3. Performance against Profitability
Canada's marijuana market can grow to $ 12 billion, and Canadian cannabis companies have spent money building their operations. Canopy Growth and Aurora Cannabis are no exception. To ensure they remain the world's two largest marijuana companies, they add people, grow space, and process facilities, and invest in research. In short, rising costs are far above the sales of both companies.
Auror's total operating expenses increased 398% the following year. As a result, they were 207% of net sales in the fourth quarter, up from 193% of net sales last year. Canopy Growth's total operating expenses increased 299% from one year ago, accounting for 204% of net sales in the fourth quarter, up from 196% of net sales in the same quarter last year.
|Company Costs, Last Quarter||Operating Expenses, Quarterly Last Year||Year Change|
|Canopy Growth||$ 169.7||$ 42.6||299%|
|Aurora Cannabis||] $ 112.3||$ 22.5||398%|
Expenditure on establishing management in this market is the right move, but that does not mean that we should not consider how these companies use investor money and whether one can be better able to translate future revenue into net income. One way we can do by comparing how much of the net sales they spend on different operating costs and their gross margin, or the percentage of revenue left after pulling the price of goods sold from sales.
For example, Aurora Cannabis expenses for general and administrative expenses increased to 81% of revenue from 65% of revenue in the same quarter last year, but sales and marketing expenses fell to 42% from 44% of revenue in the period, based compensation costs more than doubled, it fell to 35% of net sales from 64% of net sales year-over-year.
By comparison, Canopy Growth used 56% of net sales on general and administrative costs, up from 51% a year ago, and 54% of net sales on sales and marketing expenses, up from 43% a year ago, while stock-based compensation was 77% of net sales last year, compared with 82% last year.
It is clear that both companies are consistent in terms of total operating costs of net sales, but a larger proportion of net sales come to general and administrative costs of Aurora and more net sales go to sales and marketing at Canopy Growth.
Another way of comparing these companies with profitability is to focus on the gross margin, which can provide better insight into which company has a marijuana production cost advantage. Canopy Growth's gross margin before fair value expenses was 22% in the previous quarter, and Aurora Cannabis was 52%. In the same quarter last year, Canopy Growth's gross margin was 55%, and Aurora Cannabis was 59%.
Canopy Growth owes its low gross margin last year to expenses related to expansion efforts that were not "fully booked" yet, but even though we are factoring these costs, the Aurora Cannabis gross margin is still higher. Because they make similar revenues to total operating costs, but Aurora Cannabis has better gross margin, I have to give that edge this time.
Advantage: Aurora Cannabis, by a nose
So what is the verdict?
This was a transformative quarter for Canopy Growth and Aurora Cannabis. Sales skyrocketed with the start of recreation sales in Canada, but it made spending. Overall, I think they are both long-term buyers for growth investors, but if I had to choose the one I felt set up with a better report last year, I had to go with Canopy Growth. Yes, Canopy Growth's gross margin stumbled, but a quarter does not make a trend, and its total sales, market share and price strength strengthen its position as the cannabis company that everyone else should address.