Earnings preview: Will Canopy Growth post upbeat Q4 2019 results?

Canopy Growth (TSX: WEED, NYSE: CGC) is scheduled to release its financial results for the fourth fiscal quarter of 2019 after the market closes on Thursday, June 20, 2019. The Ontario, Canada-based cannabis company missed the estimates for three quarters in a row so far this year and this trend is likely to continue for the short-term due to an increase in the costs and expenses associated with the company’s investment in cannabis harvest.

Analysts expect Canopy to post a loss of CAD0.23 per share on revenue of CAD99.23 million for the fourth quarter. For the third quarter of 2019, Canopy posted a loss of CAD0.38 per share on revenue of CAD83 million. The company’s loss was wider than the analysts’ expectations in Q3 and revenue missed consensus estimates.

READ: Canopy Growth posts big Q4 miss, but investors remain stoic

During Q3, Canopy sold 10,102 kilograms and kilogram equivalents at an average sale price of CAD7.33, compared to 2,330 at an average price of CAD8.30 in the prior year period. This represented a 334% growth in kilograms sold while the average sale price fell by 12%. Cannabis harvested declined by 5% to 7,556 kilograms.

Canopy Growth has expanded to new markets including the UK and Peru and announced intention to establish operations in New York State, marking the company’s entry into the US hemp market. The company entered into extraction supply related agreements with Valens GroWorks, Medipharm Labs, and POS Holdings for supplying the significant quantities of cannabis oil. The company expects cannabis oil will be required to meet the needs of future value-added products including vape pens and beverages.

The company is in the final stages of completing its Canadian production and extraction platform. Canopy Growth expects gross margins to expand in the coming quarters when all of its cultivation facilities reach full utilization and cycle through initial pilot harvests to be high performing assets. Also, margins are expected to expand when edibles and beverages are introduced later in calendar 2019 with lower costs of active ingredients per serving.

During the third quarter, Canopy Animal Health completed certain pre-clinical studies related to the treatment of anxiety in companion animals using Cannabidiol (CBD). Also, the subsidiary closed certain cannabis consumption safety trials which produced data critical to validating the safety of cannabis-based therapeutic products for animals.

Subsequent to the end of the quarter, Canopy Health Innovations has begun phase 2b “in-human” clinical trials to evaluate the use of medical cannabis in the treatment of insomnia. The trials are being conducted in collaboration with a leading Canadian research institution. The company purchased the assets, including over 40 cannabis-related patent applications of Colorado-based hemp researcher, ebbu.

During mid-May, the company appointed Mike Lee to its executive leadership team in the acting role of Chief Financial Officer (CFO), effective June 1, 2019. Mike’s permanent role as CFO will commence upon receiving Health Canada security clearance required for all Officers and Directors. Tim Saunders, who decided to retire as CFO, will continue to serve as a strategic advisor in areas of mergers and acquisitions, corporate financing, and business transformation.

For the fourth quarter, the company is expected to post a narrower loss due to the expenses leverage as well as its ability to generate strong top line, which the analysts expect to soar by 335%. The Canadian recreational cannabis market will be dominated in the long term by businesses delivering excellent products and consumer experiences.

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