Legal pot sends Smiths Falls-based Canopy Growth's Q3 revenues skyrocketing

Canopy Growth co-CEO Bruce Linton.

Canopy Growth Corp.'s revenue soared in its latest quarter on its first sales of recreational cannabis, but the licensed producer's loss from operations widened.

The Smiths Falls-based company reported revenue of $97.7 million in the quarter ended Dec. 31, or net revenue of $83 million, up from $21.7 million during its financial third quarter a year earlier.

That surpassed the $81.2 million in revenue expected by analysts, according to Thomson Reuters Eikon.

However, the company – one of Canada's largest cannabis producers – recorded a loss from operations for the quarter, but turned a net profit due to gains on the fair value of its assets and liabilities.

Canopy's net income attributable to common shareholders, including net gains on the fair value of its assets, was $67.6 million or 22 cents per basic share, up from $1.6 million or one cent per basic share a year earlier.

However, on an diluted basis, Canopy reported a net loss attributable to common shareholders of $121 million or 38 cents per diluted share, deeper than the $66.04 million or 16 cents expected by analysts, according to Thomson Reuters Eikon.

Canopy's co-chief executive Bruce Linton said the company uses a "long time horizon" for planning and its investments in science and intellectual property is expected to result in larger profit margins down the road.

That includes development of new form factors, such as edibles, and clinical trials for medical products, he told analysts on a conference call discussing its latest results.

"Some of (the trials) are expected to have the potential for claims as early as Q4," said Linton. "That does start to put quite a bit more potential for margin, because you're no longer selling medical marijuana you're selling outcomes on cannabinoid therapy."

Its chief financial officer Tim Saunders said some of the company's spending during the quarter went towards the build up of production facilities, such as in Quebec, which are not up to speed. He said he expected gross margins to improve as more capacity comes online and when edibles are legalized later this year.

Canopy's strong net revenues were a "relief, given the meaningful miss last quarter when it slipped to $23 million in sales, said Cowen and Company analyst Vivien Azer.

"The offset, however, seems to be an absence of production efficiencies as cash (cost of goods sold per) gram continued to climb, and was $5.11 in the quarter," she said in a note

That's a "far cry" and "meaningfully higher" than the $2 to $3 seen from Canopy's peers, Azer added.

Canopy's loss from operations was $157.2 million, compared with a loss of $26 million a year earlier. Its adjusted earnings before taxes, depreciation and amortization (EBITDA) amounted to a loss of $75.1 million, compared with a year earlier adjusted loss of $5.68 million.

Meanwhile, Saunders said he has decided to retire as chief financial officer later this year after assisting with the transition to a new CFO, but will remain on the board of directors as a strategic adviser.

On the Toronto Stock Exchange, its shares gained $1.78 or 2.9 per cent at $63.06 in midday trading.