On August 9, 2024, Canopy Growth Corp (CGC, Financial) released its 8-K filing for the first quarter of fiscal year 2025, ending June 30, 2024. Canopy Growth, headquartered in Smiths Falls, Canada, cultivates and sells medicinal and recreational cannabis, and hemp, through a portfolio of brands that include Doja, 7ACRES, Tweed, and Deep Space. Its non-THC products include skincare products under Martha Stewart CBD and Storz & Bickel vaporizers. Canopy Growth merged its US assets into a separately operated holding company, Canopy USA, which will not be consolidated into the Canadian company's financials.
Performance and Challenges
Canopy Growth Corp (CGC, Financial) reported a mixed performance for Q1 FY2025. The company achieved a gross profit of $23 million, representing a 67% increase over Q1 FY2024, despite a decline in consolidated net revenue. The gross margin improved significantly to 35%, up by 1,700 basis points year-over-year. However, net revenue declined by 13% to $66 million, primarily due to the impact of divested businesses.
Financial Achievements
Canopy Growth Corp (CGC, Financial) demonstrated broad-based improvement across key financial metrics in Q1 FY2025. The company reported a 31% reduction in Cost-of-Goods Sold (COGS) and a 24% reduction in Selling, General & Administrative (SG&A) expenses compared to Q1 FY2024. Operating loss from continuing operations was $29 million, a 47% improvement over the previous year. The consolidated Adjusted EBITDA loss narrowed to $5 million, a 77% improvement driven primarily by cost reduction actions already implemented.
Income Statement Highlights
| Metric | Q1 FY2025 | Q1 FY2024 | Change |
|---|---|---|---|
| Net Revenue | $66.2 million | $76.1 million | -13% |
| Gross Margin | 35% | 18% | +1,700 bps |
| Operating Loss | $29 million | $55 million | -47% |
| Adjusted EBITDA | -$5 million | -$22 million | +77% |
Balance Sheet and Cash Flow
As of June 30, 2024, Canopy Growth Corp (CGC, Financial) reported a cash and short-term investments balance of $195 million, compared to $203 million at the end of March 2024. Free Cash Flow was an outflow of $56 million in Q1 FY2025, an improvement of 49% compared to Q1 FY2024. The company also extended the maturity of its senior secured term loan to December 18, 2026, with an option to further extend to September 18, 2027.
Segment Performance
In the Canada cannabis segment, net revenue was $38 million, a decrease of 6% year-over-year. However, the Canada medical cannabis net revenue increased by 20%, marking the sixth consecutive quarter of growth. The international markets cannabis segment saw a slight decline of 1% in net revenue, with growth in high-margin Poland offset by a decline in Australia. Storz & Bickel, the company's vaporizer segment, reported a 2% increase in net revenue, driven by strong growth in Germany.
Commentary
"The fundamentals of our business continue to strengthen, and our focus on profitable revenue generation is yielding clear results as we set the stage for growth in the second half of fiscal 2025. With our core businesses delivering adjusted EBITDA profitability and primed for growth, paired with Canopy USA’s positioning to benefit from near-term market opportunities in the U.S., Canopy Growth is advancing rapidly and is well established for multi-market cannabis leadership." - David Klein, Chief Executive Officer
"Our strategic initiatives have led to notable improvements in Gross Margins and Adjusted EBITDA as well as reduction in SG&A expenses. We are pleased that all of our business units delivered positive Adjusted EBITDA during Q1 Fiscal 2025 and expect to achieve positive Adjusted EBITDA on a consolidated basis in the second half of the fiscal year. We’ve continued to enhance our financial flexibility through additional actions, including the extension of our term loan, which will enable us to fund strategic growth initiatives." - Judy Hong, Chief Financial Officer
Analysis
Canopy Growth Corp (CGC, Financial) has shown significant improvements in its financial metrics, particularly in gross profit and adjusted EBITDA, which are crucial for the company's long-term sustainability. However, the decline in net revenue and the continued operating losses indicate that the company still faces challenges in achieving consistent profitability. The strategic initiatives and cost reduction measures appear to be yielding positive results, positioning the company for potential growth in the latter half of FY2025.
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Explore the complete 8-K earnings release (here) from Canopy Growth Corp for further details.
