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Why Canopy Growth Stock Is Crashing Today

By Keith Speights – Updated May 29, 2020 at 10:24AM

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The cannabis producer reported dismal fourth-quarter results.

What happened

Shares of Canopy Growth (CGC 6.59%) were crashing 18.5% lower as of 10:01 a.m. EDT on Friday. The steep drop came after the Canadian cannabis producer announced its fiscal 2020 fourth-quarter and full-year results before the market opened.

Canopy's net revenue in Q4 fell 13% from the previous quarter to 107.9 million Canadian dollars. The company posted a huge net loss of CA$1.3 billion, or CA$3.72 per share. Analysts were expecting Q4 revenue of CA$128.9 million and a net loss per share of CA$0.59.

Cannabis plants in greenhouse

Image source: Getty Images.

So what

Any company that misses Wall Street's expectations as badly as Canopy did is going to experience repercussions. It's important to understand why Canopy underperformed so much, though.

A major factor behind Canopy's sales decline was the COVID-19 pandemic. The company had to close its retail stores in March, causing its recreational business-to-consumer sales to slip 14% from the previous quarter. Canopy's business-to-business sales fell by 31% quarter over quarter. Although sales grew for softgels, oils, and cannabis derivative products, it wasn't enough to offset a decline in sales of cannabis flower and pre-roll joints.

This revenue drop-off trickled down to Canopy's bottom line. Increased operating expenses also were partly to blame for the company's eye-opening net loss. However, the biggest issue was Canopy's CA$743 million impairment and restructuring charges in Q4.

The good news for Canopy is that the negative impact of the COVID-19 pandemic will only be temporary. The reopening of the Canadian economy should boost the company's sales. Also, its impairment and restructuring costs are one-time items that won't be issues for Canopy going forward.

Now what

There could be even higher volatility for the marijuana stock moving forward. Canopy withdrew its previous milestones for achieving positive adjusted EBITDA and net income. That's certainly not good news for investors who were hoping the company would establish a clear pathway to profitability. 

However, Canopy did at least provide a glimmer of hope. It stated that it might "provide new metrics by which to measure the company's performance" in the second half of its new fiscal year depending on what happens with the COVID-19 outbreak.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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