Canopy Growth Corporation (WEED.TO) (TWMJF) released its consolidated financial results for the first quarter fiscal 2018 which ended on June 30th.

Operational Highlights
• In June, Canopy launched the sale of Canada’s first encapsulated cannabis oil soft gels
• During the quarter, AB Laboratories Inc., Canada’s Island Garden, JWC Ltd, and PUF Ventures Inc. joined the CraftGrow program
• On June 24th, Canopy reported to have increased flowering capacity at Smiths Falls and Bowmanville facilities by 33% and 200%, respectively
• Reported that its industrial cannabis oil extraction system is operational
• On July 26th, Canopy completed a $25 million private placement with one investor at $8.05 per share
• Canopy’s subsidiary, Spektrum Cannabis GmbH passed the first stage of the tender application process to become a licensed medical cannabis producer in Germany
• Subsidiary Canopy Rivers entered funding arrangements to provide growth capital and strategic support to two cannabis producers and applicants regulated pursuant to the ACMPR. The investments totaled $8.0 million and were comprised of convertible debt, subscribed equity and production linked structures.

Financial Highlights
• During the quarter, Canopy Growth recorded a $4.4 million net loss on $15.9 million in revenue. In the same period last year, the company recorded a $3.9 million net loss. Revenue grew by 8% over the prior quarter and by 127% when compared to the prior year’s period. The net loss included the net non-cash effects of the IFRS accounting for biological assets and inventory which combined to a gain of $10.7 million. In the comparative period last year, these numbers combined to a loss of $0.8 million.
• The numbers were impacted by the launching of the Tweed Main Street online store. This transition required the moving individual Tweed, Mettrum and Bedrocan e-commerce sites offline and the migration of customers to a single database. The process reduced sales activity over a period of approximately 10 business days in April. The numbers were also impacted by Mettrum’s cultivation operations being inactive for most of the quarter while they were being integrated with new standard operating and quality control procedures.
• Sold 1,830 kilograms and kilogram equivalents (86% increase on a year-over-year basis) and harvested 5,575 kg (196% increase on a year-over-year basis). Canopy recorded an average sales price of $7.96 per gram, up from $7.09 per gram during the prior year period.
• The total weighted average cost per gram to produce, harvest and sell cannabis, including cost per gram for shipping and fulfillment was $2.78 as compared to $2.65 in the same quarter of last year and $2.90 in the fourth quarter of fiscal 2017.
• The first quarter gross margin was $9.0 million or 57% of revenue as compared to $4,205 and 60% of revenue in the same quarter of last year, and 64% for the fourth quarter of fiscal 2017.

Inventory and Liquidity Highlights
• As of June 30th, Canopy Growth reported to have $115.5 million in cash and cash equivalents. The amount of cash on hand increased by $13.6 million when compared to the prior quarter. The increase was mainly due to cash held by a controlled subsidiary, Canopy Rivers raising $36.2 million in an offering.
• Inventory as of June 30th amounted to $65.5 million and biological assets amounted to $9.3 million.
• As of June 30th, Canopy had 10,715 kilograms of dry cannabis and 2,683 L of cannabis oils, ranging from concentrated resins, or refined oil, to finished oil. Included in the dry cannabis quantities was 1,235 kilograms available for sale in the online stores, 2,974 kilograms in process of finishing or awaiting approval for sale and 6,506 kilograms held for extraction.
• With the commissioning of the new AES industrial capacity extraction equipment and approval of soft gel capsules by Health Canada, the dry cannabis inventory held for extraction is expected to be converted to oils and capsules by the end of calendar 2017.

From the CEO
• Canopy Growth Chairman and CEO Bruce Linton said, “Our focus in the first half of calendar 2017 has been preparing our business to lead the legal recreational market that is set to open in Canada in 2018, while continuing to be the clear leader in the ongoing medical market. Believing business to consumer e-commerce sales will form the backbone of the Canadian cannabis market in 2018 and beyond, we have taken deliberate steps this year to stress our platform and in some cases break it, all as part of a warm up exercise. Recording sales of $1M in a single day earlier this year revealed many points in our sales, fulfillment and shipping infrastructure that needed strengthening. With many customers asking to be able to access all products under the canopy, it made perfect sense for us to transition, in April, from multiple, single brand sites to the Tweed Main Street marketplace. Bringing all products of our many leading brands together under one roof, to provide a shopping experience similar to what customers expect in many other markets, has strengthened our leadership position. Earlier this year we undertook a strain cultivation planning effort, the direct result of which has been a wave of dried cannabis products coming into Tweed Main Street that began in the first quarter. The next wave, in oil supply, has begun and we expect it to grow in the fall as the capacity of our new oil extraction system reaches the market. Lastly, with the addition of Canada’s first soft gel caps and cannabis from our first CraftGrow partner, Canada’s Island Garden, the ramp of products available through Tweed Main Street is just beginning.”


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