Canopy shares plunge as pot producer posts another loss

Canopy Growth Corp (WEED.TO), posted another core loss on Friday, denting investor hopes that the cannabis producer would turn profitable anytime soon, sending its shares down 8%.

The company’s quarterly gross margin was impacted by a decline in production, lower prices in the Canadian recreational business, a shift in business mix and a fall in government payroll subsidies related to a COVID-19 relief program.

Canopy has been focusing on premium high-potency offerings and has undertaken cost cuts through layoffs, exits from some international markets and store closures in its bid to turn profitable, after nearly four years of cannabis legalization in Canada.

Some of these cost-saving measures are being offset by higher wage inflation and supply-chain costs, Chief Financial Officer Judy Hong said in a call, adding that the majority of the savings are expected to be recognized in the second half of fiscal 2023.

“We expect cost savings to ramp in the second half of the year,” Hong added. Canopy achieved more than C$40 million ($30.96 million) of savings in the quarter.

Canopy earlier this year extended its time frame to achieve profitability as fewer-than-expected retail stores and cheaper black market rates crimp sales at legal recreational companies.

The company, which had first aimed to turn profitable by the second half of 2022, now expects to report core earnings only in fiscal 2024, excluding certain investments. Analysts estimate it will be delayed by another year.

The cannabis producer also took a hit of C$1.73 billion in the quarter due to asset impairment charges and restructuring costs, forcing it to post a net loss from year-ago profit.

It posted an adjusted core loss of C$74.8 million in the first quarter ended June 30, compared with a loss of C$63.6 million a year earlier.

($1 = 1.2919 Canadian dollars)