Company has strong performance despite unprecedented volatility.
Canopy Growth Corporation (NYSE:CGC) today announced its financial results for the first quarter fiscal 2021 ended June 30, 2020. All financial information in this press release is reported in millions of Canadian dollars, unless otherwise indicated.
"We're proud of our strong first-quarter performance, despite unprecedented volatility and uncertainty in the market and across the globe," said David Klein, CEO. "We are implementing a renewed corporate strategy with the appointment of a new leadership team which will focus on delivering quality products to our consumers, positioning our business for continued growth. The proposed retooled Acreage announcement refocuses our entry for the evolving U.S. market, where we are seeing increased momentum."
We grew our revenue year-over-year and are seeing market share improvement, notably achieving number one market share in cannabis-infused beverages in the Canadian market.David Klein, CEO
"Following our previously announced restructuring actions, we have substantially reduced our expense and cash burn in this quarter in addition to reducing headcount by over 18% since beginning of this calendar year. Our marketing and R&D investments are being re-allocated to programs with high-return potential in order to drive sales," added Mike Lee, CFO. "Our gross margins in the quarter came in below our expectations due to under-utilization of our large-scale infrastructure. We've already proven we can deliver 40%-plus gross margin and are confident that we can return to that level as we work toward higher capacity utilization across our facilities as demand for our cannabis products continue to grow. In the meantime, we are focused on further optimizing our operating footprint through a full end-to-end strategy that looks at people, process, technology, and infrastructure that we believe will lead to best in class margins over time."
First Quarter Fiscal 2021 Financial Summary
First Quarter Fiscal 2021 Corporate Financial Highlights
- Revenues: Net revenue in Q1 2021 increased by 22% versus Q1 2020 driven by higher medical cannabis sales in Canada and Germany, strong Storz & Bickel vaporizer sales and the benefit of a full quarter of contribution from acquired businesses C3 (acquired in April 2019) and This Works (acquired in May 2019) that were reflected for a full quarter in Q1 2021. Excluding the impact from acquired businesses, net sales growth increased 9% versus Q1 2020. The growth was partially offset by a decline in Canadian Recreational cannabis revenue due to restricted retail operating environment in response to the COVID-19 pandemic and increased competition in dried flower-based products.
- Gross margin: Gross margin was 6%. Adjusted gross margin, excluding inventory step-up costs, was 7%, down 1,300 bps versus Q1 2020. Gross margin was impacted by lower production output as well as manufacturing variances and inventory adjustments.
- Operating expenses: Total SG&A expenses declined by 23% versus Q1 2020, driven by year-over-year reductions in Sales & Marketing expenses, partially offset by higher General & Administrative (G&A) and Research & Development expenses. Sales & Marketing expense decline of 25% reflects lower compensation expenses resulting from corporate restructuring actions taken earlier in the year, delayed or cancelled marketing activities and reduced travel-related expenses due to the COVID-19 pandemic. G&A expenses increased 2%, while R&D expenses rose 61% mainly driven by research studies that commenced in Q2 and Q3 2020 and increased activities to support Cannabis 2.0 product development. Share-based Compensation expenses decreased 65% over Q1 2020.
- Net Loss: Net loss of $128 million in Q1 2021, a $66 million narrower loss versus Q1 2020, was driven by higher revenue and lower SG&A expenses.
- Adjusted EBITDA: Adjusted EBITDA loss was $92 million in Q1 2021, compared to a loss of $93 million in Q1 2020.
- Cash Position: Cash and Short-term Investments amounted to $2.0 billion at June 30, 2020, unchanged from $2.0 billion at March 31, 2020 reflecting the investment of approximately $245 million by an indirect wholly-owned subsidiary of Constellation Brands (NYSE:STZ) to exercise warrants in the Company offset by the EBITDA loss and capital investments.
Business & Operational Highlights
- Significant progress on our strategic priorities and organizational design: Key activities included implementing new organizational structure and aligning resources to reflect a new strategy, initiating end to end supply chain review, and rolling out dried flower quality improvement programs.
- Strengthened competitive positioning in Canada recreational market:
- Completed a national repositioning of Twd. dried flower value brand; our dollar share increased nearly 5pts in value flower in the province of Ontario during the latest 4-weeks ended July 19, 2020.
- Company's Rec 2.0 products accounted for 13% of total Canada B2B sales in Q1 2021; Four Ready-to- Drink cannabis beverages under Tweed, Houseplant and DeepSpace brands available nation-wide in the Canadian recreational market; over 1.2 million beverage units have been shipped since late March 2020.
- Stepped up activities in the U.S. market to drive accelerated revenue growth:
- Launched shopcanopy.com ecommerce site in current quarter; ShopCanopy provides a one-stop shopping destination for the Company's growing portfolio of CBD products in the U.S.
- BioSteel RTD non-CBD beverages in new environmentally friendly Tetrapak packaging is now available for sale online in the U.S; we are actively engaging with major retailers in an effort to expand distribution of BioSteel products to key markets across the U.S.
- Expanded distribution of S&B vaporizer products in the U.S.
- Final preparations underway for the launch of Martha Stewart branded health and wellness CBD products expected in the coming weeks.
- The Company and Acreage Holdings, Inc. entered into a proposal agreement to amend the terms of the existing arrangement between the Company and Acreage, that reaffirms the Company's path to the U.S. THC market when federally permissible; the Amended Arrangement is subject to, among other things, Acreage shareholder approval and court approval.
- Continuing to assess the impact of the COVID-19 pandemic, with a focus on the health and safety of our employees, business continuity and supporting our communities. To date, there has been minimal disruption to production and supply chain, all of our 22 corporate-owned retail stores have re-opened and our liquidity position remains strong.
First Quarter Fiscal 2021 Financial and Operational Review
- Canadian medical revenue increased 19% from Q1 2020. The year-over-year increase due primarily to the prior year quarter being impacted by the transition of medical customers to the Spectrum Therapeutics online store and limited supply of medical cannabis medical products, as well as higher average basket size we saw in Q1 2021.
- Recreational B2C net sales declined 12% over the comparative period due primarily to the restricted cannabis retail operating environment in response to the COVID-19 pandemic, including full closure of our corporate owned store for the first half of Q1 2021, and upon reopening with click & collect/curbside pick up and reduced hours.
- Recreational B2B net sales declined by 10% from Q1 2020 primarily as a result of increased competition driving lower market share in dried flower, partially offset by new cannabis 2.0 products and reduced provisions for returns.
- C3 revenue in Q1 2021 increased 75% over Q1 2020 due to the recognition of a full quarter of revenue in Q1 2021 (compared to approximately two months of revenue in Q1 2020 following the acquisition of C3 by the Company in April 2019) and growth of the Dronabinol market in Germany. C3 revenue increased by 17% on an organic basis, adjusted for the timing of acquisitions.
- Dried flower sales in Germany grew 181% in Q1 2021 over Q1 2020 due to increased supply and patient demand.
- S&B vaporizer revenue in Q1 2021 increased 74% over Q1 2020, benefiting from expanded distribution in the United States and broader product portfolio.
- This Works sales in Q1 2021 increased 160% over Q1 2020 due in part to the recognition of a full quarter of revenue in Q1 2021 (compared to less than a month of revenue in Q1 2020 following the acquisition of This Works by the Company in May 2020). This Works sales declined by 13% on an organic basis, mainly due to the closure of retail stores as a result of the COVID-19 pandemic.
The first quarter fiscal 2021 and first quarter fiscal 2020 financial results presented in this press release have been prepared in accordance with U.S. GAAP.
To learn more about Canopy Growth, visit the company HQ here.
Disclaimer: Past performance is not an indicator of future performance.
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