Canopy Growth loses Canadian market share, expects profit in 3 to 5 years

Promotional material is pictured in the lobby at the Canopy Growth Corporation facility in Smiths Falls, Ontario, Canada, January 4, 2018. Picture taken January 4, 2018. REUTERS/Chris Wattie

Canopy Growth Corp. shares (WEED.TO)(CGC) fell on Thursday as investors digested a quarter in which the world’s largest cannabis producer lost ground in the Canadian market, missed revenue expectations, and took an $8 million writedown to account for potential product returns from provincial distributors.

The Smiths Falls, Ont.-based company expects it will take three to five years to report a profit as it continues to invest in research, products and global expansion.

Toronto-listed shares tumbled 14.09 per cent to $36.57 at 2:02 p.m. ET. In New York, shares fell 14.86 per cent to $27.19.

The pot giant said it lost Canadian recreational market share in the last eight months as rivals ramped up supply, biting into the lead Canopy Growth has held onto since recreational legalization on Oct. 17, 2018.

Speaking on a conference call with analysts, chief executive officer Mark Zekulin said Canopy Growth still commands between one-third and one-fourth of sales in that market segment, but the current figure is now at the lower end of that range.

The Canadian pot producer missed revenue expectations its fiscal first quarter reported after the closing bell on Wednesday. Canopy Growth’s revenue from cannabis declined for a second consecutive quarter, even as overall Canadian spending on cannabis continues to rise.

“We do still depend on the Canadian market,” Zekulin said on the call Thursday morning, expressing optimism that Ontario and Quebec will bring more retail locations online in the near term to help lure new customers.

Canopy Growth took a $8 million writedown for potential reimbursements to its wholesale customers for unsold product. The company said higher margin cannabis oil and soft gel capsules did not sell as well as expected compared to high-THC dried flower.

“In Q4, we had about a 50/50 mix between bud and soft gels. Whereas in Q1, our mix was heavily weighted towards bud and less weighted on oils and soft gels. Oils and soft gels, being an average higher price, had a negative mix impact,” Zekulin said.

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