Canopy stock drops as Destiny Producer incurs another loss

A banner bearing the Canopy Growth Corporation logo at its facility in Smith Falls, Ontario, Canada, January 4, 2018. REUTERS/Chris Wattie/File Photo/File Photo

Aug 5 (Reuters) – Canopy Growth Corp. (WEED.TO)posted another fundamental loss on Friday, dampening investors’ hopes that the cannabis producer will turn a profit anytime soon, sending its shares down 8%.

The company’s quarterly gross margin was impacted by lower production, lower prices in the Canadian entertainment business, a shift in the business mix, and lower government payroll benefits related to the COVID-19 relief program.

Canopy focuses on highly effective premium offerings and has made cost cuts through layoffs, exiting some international markets and closing stores in pursuit of profits, after nearly four years of cannabis legalization in Canada.

Some of these cost-saving measures are offset by higher wage inflation and supply chain costs, Chief Financial Officer Jodi Hong said in a phone call, adding that most of the savings are expected to be recognized in the second half of fiscal year 2023.

“We expect cost savings to increase in the second half of the year,” Hong added. Canopy generated more than C$40 million ($30.96 million) in savings in the quarter.

Canopy earlier this year extended its time frame for profitability as lower-than-expected retail stores and cheaper black market rates slashed sales at legal entertainment companies.

The company, which initially aimed to turn a profit by the second half of 2022, now expects to announce only core earnings in fiscal 2024, excluding some investments. Analysts estimate that it will be delayed by another year.

The cannabis producer also received C$1.73 billion in the quarter due to asset impairment charges and restructuring costs, forcing it to incur a net loss from last year’s profit.

It posted an adjusted base loss of C$74.8 million in the first quarter ended June 30, compared to a loss of C$63.6 million in the previous year.

(1 dollar = 1.2919 Canadian dollars)

Additional reporting by Rithika Krishna and Arunima Kumar in Bengaluru; Edited by Vinay Dwivedi

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