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StockBeat - Canopy Growth Continues Slide as Earnings Paint Hazy Outlook

Published 24/06/2019, 18:03
Updated 24/06/2019, 18:49
© Reuters.

© Reuters.

Investing.com - Canopy Growth on Monday extended its slide from last week, as traders continued to mull over the company’s wider-than-expected loss and narrower margins.

Canopy Growth (NYSE:CGC) fell 2.7%, adding to its nearly 11% slump on Friday, when the marijuana giant reported a fiscal fourth-quarter loss per share of C$0.98 and revenue of C$94.1 million, up 313%.

The company attributed the surge in revenue to “value-added products, extraction services, and clinic partners," but the revenue growth was more than offset by a ramp up in costs, weighing on margin growth.

Gross margin for the quarter fell to 16% of net revenue, down from 34% of net revenue a year earlier, which CFO Mike Lee blamed on "operating expenses for facilities not yet cultivating or facilities that had underutilized capacity."

Looking ahead, some on Wall Street expect Canopy to improve margins, even as costs will likely climb as the company ramps up manufacturing and processing to boost output.

While BMO said it believes Canopy's gross margins will improve, analysts expressed some doubt on the contribution to growth from edibles and vapes.

The bank also questioned the company's ability to hit its C$1 billion run-rate guidance by the end of fiscal 2020 as the operating expenses required to ramp manufacturing and processing could be higher than planned.

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