Several Canadian cannabis producers have announced pretty good, and even really good, quarterly updates. For example, Aphria and Cronos Group reported strong quarter-over-quarter sales growth.  

It seemed reasonable to conclude that the biggest cannabis producer by market cap, Canopy Growth (NASDAQ:CGC), would follow in their footsteps with its fiscal 2020 first-quarter update. But Canopy Growth apparently didn't get the memo.

The company reported its Q1 results after the market closed on Wednesday. And, boy, were those results ugly. Here are three things you'll want to know about Canopy's latest update. 

Cannabis plants in a greenhouse

Image source: Getty Images.

1. Shockingly low revenue

Analysts were looking for Canopy Growth to post 17% quarter-over-quarter net revenue growth in the first quarter. Instead, the company announced net revenue of $90.5 million Canadian, nearly 4% lower than its total in the previous quarter. 

This net revenue decline is stunning. The company reported dried cannabis sales in the Canadian recreational market of CA$60.8 million, up 94% from the fourth quarter of fiscal 2019. International medical cannabis sales soared to CA$10.5 million from CA$1.8 million in Q4.

However, the glaring problem spot was with cannabis oils. Canopy reported Q1 oil and softgel revenue of only CA$0.2 million. In the previous quarter, the company announced oil and softgel revenue of CA$36.5 million. 

What in the world happened? Canopy Growth stated that it performed an evaluation of provincial and territorial inventory levels and compared them against recent demand and sales trends. The company said that "as a result of this evaluation, we believe that the risk of an oversupply of certain oil and softgel formats may exist in certain markets." It then incorporated an estimate of future returns of CA$8 million in gross revenue, which corresponds to CA$6.4 million in net revenue, into the net revenue figure for Q1. 

2. Gross margin headed in the wrong direction

Canopy Growth reported a gross margin of 15% in the first quarter. That's worse than the 16% gross margin from the previous quarter and well below the nearly 23% level analysts expected.

The company said the dismal gross margin figure was mainly due to the negative impact of CA$16.2 million in operating costs related to facilities that aren't in full production yet. Canopy also said that a shift in product mix in the first quarter "away from higher-margin, advanced manufactured products" contributed to the lower margin. In other words, we're back to the lower oil and softgel sales issue.

3. An abysmal bottom line

Virtually everyone expected that Canopy Growth would post yet another big net loss in the first quarter. The company had warned in the fourth quarter that it would probably record a significant charge in Q1 related to adjustments for warrants held by Constellation Brands in connection with its pending acquisition of U.S.-based cannabis operator Acreage Holdings.

How bad was the company's bottom line? Canopy reported a Q1 net loss of CA$1.28 billion, or CA$3.70 per share. That's close to five times greater than the worst loss the company has reported in any quarter during its entire history. Around CA$1.18 billion of that loss stemmed from the adjustments for Constellation's warrants. 

Canopy's spending increased pretty much across the board compared with the prior-year period. However, the company's operating expenses were nearly 6% lower than they were in the previous quarter.

Some good news

Was there any good news for investors with Canopy Growth's Q1 update? Sure. The company said its harvest during Q1 totaled 40,960 kilograms, well above its previous estimate of 34,000 kilograms. That should translate to higher sales in the coming quarters.

Canopy also pointed to new market opportunities that are opening up. The second phase of the Canadian recreational cannabis market for cannabis derivatives launches in October 2019. Canopy also anticipates launching CBD products in the U.S. by the end of this year.

The company still has a hefty cash stockpile as well. Canopy reported cash, cash equivalents, and marketable securities totaling CA$3.1 billion at the end of June. That was CA$1.4 billion lower than the cash on hand at the end of the fiscal fourth quarter, though, mainly because of the acquisitions of C3 and This Works, the premium paid in connection with the Acreage deal, and spending on infrastructure.

Canopy Growth should still be in a solid position to win in the global cannabis market. But investors won't be happy campers with any more quarters as ugly as this one.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.