What happened

Shares of Canopy Growth (NASDAQ:CGC) dropped precipitously in early Thursday trading, and were down 14.1% as of 10 a.m. EST today, after the Canadian cannabis company announced fiscal Q2 2020 earnings this morning.  

And by "earnings," I mean "losses."

Marijuana plants

Image source: Getty Images.

So what

Expectations hadn't been all that high to begin with. Heading into earnings day, analysts had predicted Canopy Growth would lose $0.40 per share in Canadian currency ($0.30) in the quarter. Instead, the company suffered a net loss more than twice as big -- CA$0.96 -- as operating costs surged far more than investors had anticipated.  

CEO Mark Zekulin said that "the last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market."

Company-owned recreational same-store sales growth was 17%, and global medical organic growth was 23%.

Despite all that, quarterly net revenue declined 15% sequentially to CA$76.6 million -- the exact opposite of what growth investors wanted to see -- largely because of a management-initiated portfolio review, which included taking CA$32.7 million in charges for returns, return provisions, and pricing allowances primarily related to its softgel and oil portfolio.

Now what

In a post-earnings conference call, management warned that given the size of the revenue miss in Q2, it's unlikely to achieve previous forecasts for CA$250 million in total revenue by the end of this fiscal year.  

Between that warning and the magnitude of the actual Q2 miss, investors are taking the logical course of action, and dumping Canopy Growth stock.

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.