Ontario-headquartered Canopy Growth (CGC) produces and commercializes cannabis and hemp-based products primarily in Canada, the U.S., and Germany. I am bullish on the stock.
The marijuana stock trade had its shining moment in 2018 when optimism was at its peak, and it felt like Canopy Growth stock would shoot to the moon. Fast-forward to the 2020s, however, and the optimism turned to pessimism as many cannabis stocks fell to multi-year lows.
As Canopy Growth stock headed toward $5, undoubtedly, the shareholders hoped that the company’s fourth-quarter 2022 and full fiscal-year 2022 financial results would provide some much-needed relief. Unfortunately, the bulls were disappointed as investors dumped their Canopy Growth shares after the data release.
Was the negative response reasonable or an overreaction? That’s for each investor to decide, and there’s no denying that the bears had some negative data points on their side. Yet, among the wreckage, we might find reasons to take the long side of the trade as Canopy Growth travels slowly but surely along the long, hard road to profitability.
Focused on Growing Brands
As it turned out, Canopy Growth stock bulls weren’t able to defend the $5 price level as the share price dove on earnings release day, May 27. It was a painful turn of events as the stock was trading near $26 just a year ago.
Even as Canopy Growth stock broke below the critical $5 level, the company emphasized its accomplishments in Fiscal Year 2022. A survey of the company’s achievements should convince the skeptics that Canopy Growth is proactively working to provide value to its stakeholders.
For example, Canopy Growth entered into plans to acquire North American cannabis edibles business Wana Brands as well as Californian cannabis brand Jetty Extracts. Those acquisitions should help Canopy Growth advance its North American brand-driven strategy.
Also, in Fiscal Year 2022, Canopy Growth maintained its number-one share in the premium flower category among Canadian consumers, while also improving the company’s market share performance in the mainstream flower category. Meanwhile, Canopy Growth strove to accelerate its brand growth in the vaporizer and beverage categories.
As CEO David Klein put it, Canopy Growth took “concrete steps” to advance its North American brand footprint by “strengthening our positioning in Canada, and further bolstering our U.S. THC ecosystem through the addition of two high-performance brands in Wana Brands and Jetty Extracts.”
Looking toward the coming fiscal year, Klein envisions Canopy Growth remaining “focused on growing our market share in the key segments that will drive profitable growth and continuing to scale our premium brands across North America.”
Aiming for Profitability
In light of Canopy Growth’s strong focus on its brands, what could the company’s investors complain about? The answer is that Canopy Growth’s fiscal Q4 results didn’t match up to expectations.
The company’s quarterly revenue of C$111.8 million, or roughly US$87.5 million, fell short of the C$129.9 million analyst consensus estimate. This result also indicated a decline of 25% versus Q4 of Fiscal Year 2021. So, it’s easy to see why some traders might have been disappointed in Canopy Growth’s quarterly performance. Still, pushing Canopy Growth stock below $5 after already pushing it lower for a full year seems excessive.
Besides, when we extend our time frame, the top-line results aren’t so bad. Specifically, Canopy Growth generated net revenue of $520 million in Fiscal Year 2022, which only represents a 5% decline compared to the previous fiscal year.
Investors should also bear in mind that a company’s bottom-line results could be considered more important than the top-line results. If that’s true, then Canopy Growth is actually moving in the right direction.
In Q4 of FY2022, Canopy Growth’s net earnings loss narrowed to C$578.6 million, versus the company’s net loss of C$616.7 million in the year-earlier quarter. This result suggests that Canopy Growth could, given enough time, actually attain profitability – something that not every cannabis producer will achieve.
CFO Judy Hong called the goal of achieving profitability “critical” while noting that Canopy Growth has “undertaken additional initiatives to streamline and drive efficiencies for our global cannabis business.”
Moreover, Hong assured that in FY2023, her company is “focused on executing our path to profitability in Canada” while Canopy Growth continues to invest in “high potential opportunities – particularly in BioSteel, and further developing our U.S. THC ecosystem, which we believe remains significantly under-appreciated by the market.”
Wall Street’s Take
Turning to Wall Street, CGC stock comes in as a Moderate Sell, based on one Buy, three Holds, and seven Sell ratings. The average Canopy Growth price target is $5.13, implying 8.9% upside potential.
The Takeaway
It’s difficult to persuade the skeptics that Canopy Growth had a good quarter. There’s no denying that the company missed analysts’ expectations when it came to quarterly revenue.
However, Canopy Growth didn’t have terrible full-fiscal-year revenue, and the company is diligently advancing its brands. Plus, Canopy Growth hopes to become profitable and might achieve this objective in time. Thus, the sell-off in Canopy Growth stock appears to be overdone, and investors can consider buying a few shares at its current low price.
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