Company focused on world-class, diversified production capacity; building the best brands; and driving forward the Company and sector through integrity and leadership
Company's announced expansion plans in six provinces and six countries are well funded; Over 2.4 million square feet of indoor and greenhouse production under development across Canada
Ongoing investment in corporate infrastructure, operations, marketing and sales functions strengthening company's position in Canadian regulated recreational and international medical markets
Operations increasing cannabis supply for sale in all formats; Inventory being scaled to ensure sufficient near term supply for expected market demand
Increased asset utilization and best practice sharing across platforms leading to falling COGs while maintaining GMP-certified production facilities and high-quality flower and value-add products with increasing average selling prices
Historic supply MOU signed with the province of New Brunswick
Canopy Growth Corporation (TSX: WEED) today released its consolidated financial results for the second quarter ended September 30, 2017. All financial information in this press release is reported in Canadian dollars, unless otherwise indicated.
Subsequent to quarter end, Canopy Growth entered into a strategic relationship with Fortune 500 global beverage leader Constellation Brands ("Constellation"). As part of the agreement, an affiliate of Constellation has invested approximately $245 millionin Canopy Growth in exchange for 9.9% equity in the Company and the parties have agreed to collaborate on new product development.
Second Quarter 2018 Highlights
Second quarter revenue was $17.6 million, a 107% increase over the second quarter ended September 30, 2016 when revenue totaled $8.5 million, and an 11% increase over first quarter of fiscal 2018 revenues of $15.9 million. Revenue in the six months ended September 30, 2017 totaled $33.4 million, more than double as compared to $15.5 million in the same period last year.
Sold 2,020 kilograms and kilogram equivalents; a 73% increase over second quarter fiscal 2017, and a 10% increase over first quarter 2018 when 1,830 kilograms and kilogram equivalents were sold.
The weighted average cost per gram1 before shipping and fulfillment was $1.25 per gram as compared to $1.27 per gram in the first quarter of fiscal 2018 and $1.70 per gram in the second quarter of fiscal 2017. The cost per gram also reflects value-add processing for cannabis oils and sector-exclusive Softgel capsules, both carrying significantly higher margins than dried flower product. The weighted average cost per gram to the point of harvest fell to only $0.72 per gram, the fifth consecutive quarter when the cost to the point of harvest was less than $1 per gram and declined from the previous quarter.
Year-to-date, the Company has sold 3,850 kilograms and kilogram equivalents at an average price of $7.98 per gram compared to 2,153 kilograms at an average price of $7.05 per gram in the six months ended September 30, 2016.
The second quarter of fiscal 2018 gross margin2 before the fair value effects of the IFRS accounting for biological assets and inventory was $10.1 million or 57% of sales, as compared to $5.1 million or 60% of sales in the second quarter of last year. Excluding the effects of non-cultivating subsidiaries and other period costs totaling $1.8 million, the gross margin in the second quarter of fiscal 2018 before the IFRS fair value impacts would have been $11.9 million or 68% of sales.
Adjusted EBITDA3 in the second quarter of fiscal 2018 amounted to a loss of $6.2 million compared to an Adjusted EBITDA loss of $1.9 million in the comparative quarter last year.
Net loss in the second quarter of fiscal 2018 of $1.6 million, or $0.01 per basic and diluted share, compared to net earnings of $5.4 million or $0.05 per basic and diluted share in the second quarter of fiscal 2017. Management believes the ongoing spending on building the Company's significant and diversified production platform, world-leading brands, unparalleled international reach, and iconic partnerships, all of which directly impacted profitability during the current period, is a prudent long-term investment to strengthen the Company's global leadership position heading into next year.
Inventory at September 30, 2017 amounted to $73.8 million and biological assets amounted to $23.5 million, together totaling $97.3 million. With its store stocked with a sector leading 40 varieties to serve medical patients, the Company has begun to actively scale inventories to meet expected future market demand, and to ensure that appropriate inventories exist to meet the needs of new cannabis retailers in the regulated recreational market.
On September 21, 2017, Canopy Growth announced that it had established a binding strategic partnership in the Danish market. Spectrum Denmark ApS will be a joint venture between Canopy Growth and Danish Cannabis ApS which will serve the needs of Danish medical cannabis patients with Spectrum's proven products.
On September 11, 2017, the Company and its wholly-owned subsidiary Spektrum Cannabis GmbH ("Spektrum") announced a supply license agreement with Spain's Alcaliber, S.A. ("Alcaliber"). Per the supply license agreement, Canopy Growth and Spektrum granted Alcaliber a licence to use certain strains and seeds to be grown and cultivated at Alcaliber's facilities for sale worldwide.
On September 8, 2017, the Company announced construction of a new 212,000 sq. ft. greenhouse and the purchase of a neighbouring 450,000 sq. ft. greenhouse in Niagara-on-the-Lake, Ontario; which upon completion will expand the total area under glass at Tweed Farms to over 1 million sq. ft.
$108.2 million in cash and cash equivalents at quarter end prior to the infusion of approximately $245 million from the Constellation investment that closed on November 2, 2017.
Subsequent to Second Quarter 2018
On October 11, 2017, Canopy Growth announced that it had entered into a definitive joint venture agreement with a greenhouse operator to develop 1.3 million sq. ft. of greenhouse growing capacity in British Columbia with an option for an additional 1.7 million sq. ft. greenhouse also in British Columbia.
On October 25, 2017, the Company announced that it launched a strategic partnership in the Jamaican cannabis market as part of its ongoing international expansion. Grow House JA Limited – to operate as Tweed Limited JA ("Tweed JA"), will serve the needs of the Jamaican medical cannabis market. Canopy Growth holds 49 per cent of the share capital of Tweed JA, which, with conditional license approvals already in place, has already begun construction of its facility.
"With our objective to win and retain significant future market share, and backed by the recent $245 million investment from Constellation, we remain focused on the expansion of our cultivation capacity, extraction platform and finished branded products programs" said Bruce Linton, Chairman & CEO. "The historic cannabis supply MOU that we signed during the second quarter with the province of New Brunswick confirmed our long‑held belief that investment in brands, quality and scale coupled with investing in the people and communities we believe in across Canada would leave us well positioned to serve provincial supply needs. We are hopeful to see more and more provinces make similar decisions to pursue the most reliable, varied and high-quality products available in the sector."
Concluded Linton, "Starting with the twenty-seven provisional patents that have been filed to date, our research affiliate Canopy Health Innovations seeks to define the breakthrough cannabis-based medical therapies that we could commercialize globally. Our relationship with Constellation and the commitment to work together to develop and market regulated recreational cannabis-based beverages, when and where they are federally legal, is a critical step in our move up the value chain. Perhaps most importantly, we are strongly aligned in our cultures and our view that industry has a role to play in defining acceptable business practices as the cannabis industry exits prohibition. With investments and capacity offtake agreements in place with quality domestic production assets and several others in negotiation, our Canopy Rivers subsidiary is analyzing global investment opportunities, another reflection of the growing international scope of our business."
Second Quarter Fiscal 2018 Revenue Review
Revenue for the second quarter fiscal 2018 was $17.6 million, an 11% increase over the first quarter fiscal 2018 in which revenue was $15.9 million and an increase of 107% over the prior year's quarter in which revenue was $8.5 million. In the three months ended September 30, 2017 and 2016, oils, including the Company's unique Softgel capsules, accounted for 18% and 14%, respectively, of the reported revenue for each period. As inventory begins to ramp-up with the production of the recently introduced Softgel capsules, the Company anticipates a further increase in the percentage of sales these products represent.
Revenue in the six months ended September 30, 2017 totaled $33.4 million more than double as compared to $15.5 million in the same period last year. Revenues in the six months ended September 30, 2017 already equal 84% of revenue generated in the twelve months ended March 31, 2017.
Second Quarter Fiscal 2018 Product Sales Review
During the second quarter of fiscal 2018, Canopy Growth sold 2,020 kilograms and kilogram equivalents at an average price of $7.99per gram, up from 1,169 kilograms and kilogram equivalents at an average price of $7.01 per gram during the prior year period. The higher average price was due to primarily to the improved mix of oil products, including oil-based Softgel capsules introduced late in the first quarter of fiscal 2018.
Year-to-date, the Company has sold 3,850 kilograms and kilogram equivalents at an average price of $7.98 per gram compared to 2,153 kilograms at an average price of $7.05 per gram in the six months ended September 30, 2016.
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Canopy Growth Corporation Reports Second Quarter Fiscal 2018 Financial Results as it Expands Infrastructure for Canadian and International Markets
