Canopy Earnings: Q3 FY2024 Revenue and Margin Growth

TDR Three Key Takeaways:

  1. Canopy Growth’s Q3 FY2024 saw a 9% and 11% increase in adult-use and medical cannabis net revenue, indicating sustained growth in Canadian operations.
  2. The company reported a 36% gross margin, reflecting improved financial health through effective cost management and operational efficiencies.
  3. Strategic initiatives, including a focus on the Canopy USA strategy and an 81% increase in international revenue, are key to future growth. We will evaluate FY2024 net income compared to Adjusted EBITDA next quarter.

Canopy Growth Corporation (TSX:WEED, NASDAQ:CGC) released its financial results for the third quarter of fiscal year 2024 within the last hour, demonstrating solid performance and strategic progress that is slightly better than our analytical forecasts from last month. The company reported revenue growth in its Canadian cannabis operations for the third consecutive quarter and achieved a record quarter for medical sales, confirming the predictions of growth we highlighted in our recent report.

The financial details reveal that the Canada adult-use cannabis business-to-business net revenue saw a 9% increase year-over-year, and the medical cannabis net revenue in Canada grew by 11% year-over-year. These outcomes are consistent with our expectations and validate Canopy’s effectiveness in seizing growth opportunities.

The report of a gross margin of 36% in Q3 FY2024, markedly improved from the previous year’s figures, was higher than our projections. This improvement in gross margins confirms our expectations and is a direct result of Canopy’s focused execution on cost management and operational efficiencies. The reduction in excess and obsolete inventory charges and the adoption of lower-cost inputs were key to this achievement.

From a financial standpoint, the improvement in free cash flow and debt reduction, alongside a cash and short-term investments balance of $186MM as of December 31, 2023, align with our expectations of a strengthening financial position. Management’s confidence in achieving positive Adjusted EBITDA across all business units by the end of FY2024 is positive, but still needs to be viewed with caution, and we would focus on net income for the full year of FY 2024.

The 81% year-over-year increase in Rest-of-World cannabis revenue, driven by strong performance in Australia and Europe, was a positive development. Furthermore, the success of the VENTY portable vaporizer by Storz & Bickel, resulting in a 54% sequential net revenue increase for the brand, confirms our forecast regarding the impact of product innovation on the company’s growth.

The appointment of new board members, Willy Kruh and Luc Mongeau, is expected to support Canopy’s strategic directions, especially in advancing the Canopy USA strategy, which is identified as crucial for the company’s future growth.

In summary, the financial results for the third quarter of the fiscal year 2024 from Canopy Growth are consistent and slightly better with the forecasts in our analysis from last month. The company’s strategic initiatives, operational efficiencies, and positioning for sustainable growth are in alignment with our expectations. We will be focused on the full year 2024 results of earnings and not Adjusted EBITDA. Want to keep up to date with all of TDR’s research, subscribe to our daily Baked In newsletter.    

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