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Canopy Growth hits new 2020 high on record quarterly revenue, legalization boost

Zack Guzman
·Senior Writer
·3 min read

The post-election rally for Canadian cannabis giant Canopy Growth (CGC) gained more steam Monday after the company reported a record C$135 million ($104 million) in net revenues during its latest quarter.

Canopy’s stock jumped 14% at the open, following its earnings report, to hit a new 52-week high before paring gains in the afternoon trade. Canopy CEO David Klein told Yahoo Finance the company is continuing to refine its process and has identified up to C$200 million in more cost savings ahead.

“It’s really about refining our processes,” Klein said. “Literally every time we go through a harvest we get better at the products we produce.”

That was reflected in Canopy’s shrinking adjusted EBITDA loss, coming in at C$85.7 million for the quarter, a 42% improvement versus the year-ago period.

Overall, the post-earnings bump comes on top of what has been a cannabis-wide rally that began after all five states in the U.S. considering cannabis legalization on ballot measures saw voters approve them. That catalyst, coupled with Canopy’s improving performance, led CFRA analyst Garrett Nelson to boost his price target for Canopy by 42%.

“With cannabis legalization on the rise in the states, we see massive margin expansion potential from a combination of top line growth and cost improvement,“ Nelson wrote in a note that maintained his Strong Buy rating. “When combined with the stock's current ~18% short interest, we think the shares are well positioned for future gains and see no signs that recent momentum won't continue, aided by potential short covering.”

FILE - In this April 15, 2019, file photo, a vendor makes change for a marijuana customer at Rev-Up a cannabis marketplace in Los Angeles. An alliance of large cannabis businesses in the growing global marketplace has a message for the public: We're good corporate citizens. The 45-member Global Cannabis Partnership that includes Canopy Growth Corp. and other major companies issued guidelines Tuesday, June 18, 2019, aimed at minimizing greenhouse gas emissions and promoting ethical conduct and responsible pot use. (AP Photo/Richard Vogel)
(AP Photo/Richard Vogel)

Klein, who is building out Canopy’s footprint with new cannabis beverages ahead of the company’s standing deal to acquire U.S. multi-state operator Acreage Holdings when the sale of cannabis becomes legally permissible at the federal level, emphasized that Canopy is already leaning on that partnership to roll out its drinks next summer in Illinois and California.

“I’ve said I want Canopy to be a cannabis-focused [consumer packaged goods] company,” he said. “I think that does drive us more to these cannabis 2.0 sorts of products, like drinks and gummies, as a real growth path going forward.”

At the very least, if Canopy’s beverage launch proves effective in Illinois and California, there will be more states where the sale of cannabis will be legal beginning next year, including the state of New Jersey. As that process continues, Klein said he remains confident that federal legalization could come sooner than his call of it coming by 2022.

“You think about states like Mississippi and South Dakota — those are more conservative states and they still moved forward to bring about some form of legalization, which I actually think will create more dialogue with the senators from those states to really move things forward,” he said.

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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