Canopy Growth earnings preview: Q1 crucial in the recent turn of events

The last three months have been pretty rough for cannabis firm Canopy Growth Corporation (NYSE: CGC), with the stock declining 37%. Though most of this sell-off was attributable to industry-wide weakness, the exit (or termination) of its co-CEO Bruce Linton acted as a double whammy.

When the Canadian pot firm last reported earnings, it had missed both the top and bottom-line estimates. The management of Constellation Brands (NYSE: STZ), a major shareholder in the marijuana company, did not hide their disappointment on Canopy’s 2019 performance, during its last earnings conference call. After investing $4 billion into the cannabis giant, Constellation was clearly looking at better ROI.

Canopy will be hoping to turn the table when it reports first-quarter 2020 earnings results on August 14, Wednesday, after market close. Analysts expect Q1 revenues of $85.97 million (approx. CAD 113.6 million), which represents an improvement of 328% from last year, and almost 17% from the last sequential quarter.  

Meanwhile, analysts expect a cut down in net loss to $0.29 per share, helped by the optimization of production costs and improved product mix. This is expected to raise gross margin also sequentially to 22.65% from 15.9%.

Taming the cannabis market

During the conference call, keep a close track of what the company plans to do with its enormous cash reserve. Since the legalization in Canada, weed’s demand has surged at such a rapid pace that producers are struggling to cope. With Constellation’s contribution safe in the wallet, Canopy is at an advantage here compared to a few other cash stricken rivals.

READ: Tilray Q2 earnings preview: What are the factors at play?

Canopy has already inked a few major deals – including those with US marijuana producer Acreage Holdings and plant extract-based products maker Keyleaf – but market observers feel there is still a lot to come.  

To meet the rising CBD demand, cannabis firms will be forced to take up more consolidations and partnerships in the years to come – and their effectiveness of these deals will decide their space in the industry.        

CGC has a 12-month average price target of $52.33, which is at a 65% upside from Friday’s trading price.

Canadian rival Tilray (NASDAQ: TLRY) is slated to report financial results on August 13, while Aurora Cannabis (NYSE: ACB) is expected to announce quarterly earnings on August 20.

Listen to on-demand earnings calls and hear how management responds to analysts’ questions