Canopy Growth beats analyst targets as its 'asset
By Steve Gelsi
Canada's Canopy Growth is launching a strategic review of its BioSteel business
An earlier version of this story contained incorrect information about Canopy USA.
Canopy Growth Inc. disclosed another quarterly loss but managed to beat analysts' expectations as its efforts to contain costs in its Canadian business start to pay off.
However, an earnings miss from U.S. cannabis company Curaleaf weighed on the sector, and many cannabis stocks moved into the red on Thursday. Meanwhile, a revenue beat from Verano Holdings Corp. failed to provide a lift to the stock.
Canopy Growth (WEED.T) CEO David Klein told MarketWatch the company is leveraging efforts to reduce both its employee base and cannabis-growing capacity by 60% each as part of an "asset-light" approach to the business.
"We've been working really hard on our transition to an asset-light business model," Klein said. "Our business is now built for today's reality...Now we know what our market is going to be."
Canopy Growth is launching a strategic review of its BioSteel business, which booked C$32.5 million in sales in the first quarter.
BioSteel "is a great brand," but that type of consumer-packaged goods requires "a lot of investment to grow" and it's not the best fit for a cannabis company, Klein said.
Canopy Growth's first-quarter loss of 5 cents a share beat the FactSet consensus projection for a loss of 13 cents a share. Its revenue of $80.9 million beat analysts' views of $68.3 million by a significant margin.
TD Cowen analyst Vivien Azer reiterated a market-perform rating on Canopy Growth and said the company's BioSteel sports drink powered its top-line results as revenue rose 2.6% over the year-ago period. She also cited strength in its core cannabis business.
"The biggest contribution to incremental revenues came from adult-use cannabis, where it seems that the revitalization work (and improved product quality) that the company is delivering in flower is resonating with consumers," Azer said.
Also read: Green Thumb Industries posts another profit as CEO channels Warren Buffett
Looking ahead, Canopy Growth continues to work on a process with the Securities and Exchange Commission to preserve its dual-listed status on both Canada's TSX and the Nasdaq as they aggregate U.S. assets under Canopy USA.
It's also planning a reverse stock-split authorization at its annual general meeting on Sept. 25.
Canopy reiterated the "going concern" language from the previous quarter, but it still has more than C$571 million in cash, down C$212 million from the previous quarter as it paid down debt and ran the company.
Canopy Growth stock fell 9% on Thursday.
Also read: Once-mighty Canopy Growth loses billions as dream of pot riches runs into reality of oversupply and overspending
Curaleaf stock drops after revenue, earnings miss the mark
Curaleaf Growth Corp.'s stock fell 3.8% after the U.S. cannabis company's second-quarter loss of 9 cents a share fell short of the FactSet consensus estimate for a loss of 5 cents a share. The company's revenue of $338.6 million fell short of analysts' forecast of $339.3 million.
Benchmark analyst Mike Hickey reiterated a hold rating on Curaleaf and said the results were disappointing, with international expansion hurting the company's margins.
Despite these setbacks, "CURLF has made great strides in reducing annualized expenses while prioritizing their brand portfolio in their dispensaries," Hickey said.
Curaleaf CEO Matt Darin said, "The fact is that no company is better positioned than Curaleaf to capitalize on the global cannabis market opportunities when the sector eventually and fully unlocks," according to a statement.
Verano emphasizes cash-flow generation
Verano's second-quarter results marked its 10th quarter in a row of positive operating cash flow and its third quarter in a row of positive free cash flow.
The company boosted the lower end of its 2023 free cash flow guidance to $65 million from $50 million and kept the top end of the range at $75 million.
Verano's second-quarter loss of 4 cents a share missed analysts' estimates by a penny a share, while its revenue of $234 million beat the FactSet consensus view of $230.6 million.
Alliance Global Partners analyst Aaron Grey reiterated a buy rating on Verano and cited positive developments such as signs of price stabilization and free cash flow generation that appears to be sustainable.
Verano stock dipped 1% on Thursday.
Also read: Verano cannabis cultivation takes root in massive ex-retail space as legal industry gears up
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