Canopy Growth Corp. shares fell sharply on Friday to their lowest levels since early 2020, after the cannabis company said it expects slower-than-expected revenue growth in the second half of fiscal 2022.
managed to shrink its quarterly loss but it said it continues to face steep competition in the Canadian market and issued cautious comments about the rollout of it U.S. BioSteel sports drink brand.
“Our gross margins have suffered from lower than planned volume, continued price compression in value and inventory write-downs resulting from our underperformance in the Canadian market,” the company said on its quarterly conference calls with analysts.
Canopy Growths stock fell 10.8% to below $12 a share.
The company said its second-quarter loss narrowed to C$11.06 million ($8.8 million), or 3 cents a share, from C$32.06 million, or 9 cents a share in the year-ago period. Revenue fell to C$145.6 million from C$150.8 million.
The cannabis company controlled by Constellation Brands Inc.
was expected to post a loss of 20 cents a share on revenue of C$139.50, according to FactSet estimates.
“The company is focused on stabilizing its market share of the Canadian recreational cannabis,” Canopy Growth said. “The company is taking steps to improve its Canadian recreational business, with increased supply of in-demand high THC flower products and new product launches across flower, pre-roll joints, vapes, edibles and beverages expected to improve market share.”
On the U.S. side of its business, Canopy Growth said distribution expansion of BioSteel is expected to accelerate in the second half of 2022, but added that “shipments may depend on timing of chain authorizations and associated shelf resets.”
MKM Partners analyst Bill Kirk said the results were worse than feared.
“We still like the potential of the U.S. business (even before THC activity,) but are shocked at the period’s expense issues and Canadian market share performance,” he said. “The fight over Canadian market share is likely to remain elevated with pressure pricing, but economic re-opening, and the accompanying increased store count, should help sector-wide performance.”
On the plus said, Kirk expects the company’s sales narrative to shift toward the U.S., where Martha Stewart gummies are gaining distribution and recruiting new consumers and BioSteel expands throughout Constellation’s network.
Overall, Canopy Growth’s stock move is part of an overall slump in cannabis stocks as riches from the Canadian market proved to be elusive this year. The Cannabis ETF
is down 5.4% this year. Including Friday’s losses, Canopy Growth stock has retreated 52% this year.