(Bloomberg) -- Canopy Growth Corp. jumped as much as 25%, the biggest gain since 2018, after the world’s largest cannabis company reported quarterly results that beat expectations across the board.
Canopy posted a 62% quarter-over-quarter jump in net revenue to C$123.8 million, which was well ahead of the consensus estimate of C$105.4 million. Cannabis gross revenue rose 8%, and Canopy said it took top market share in the quarter ended Dec. 31, capturing 22% of Canada’s recreational pot sales.
Its adjusted Ebitda loss of C$91.7 million was C$64 million narrower than the previous quarter, and beat the average analyst estimate of a C$110 million loss.
The results, which set a very different tone than Aurora Cannabis Inc.’s earnings Thursday, sent cannabis stocks higher Friday morning. Tilray Inc. gained 11%, Aphria Inc. rose 9.5% and Cronos Group Inc. added 9.8%.
Canopy cut its operating expenses by 14% in the quarter, boosting its gross margin to 34% from negative 13% in the previous quarter.
“We delivered significant gross improvement in the third quarter driven by stronger revenues and higher capacity utilization,” Chief Financial Officer Mike Lee said in a statement. “Actions taken earlier this year are expected to meaningfully reduce stock-based compensation in FY21, and we have started to implement tighter cost controls across the organization.” He added that further cost-cutting measures are planned.
Speaking on an analyst call Friday morning, Lee said he expects revenue to increase “modestly” in the current quarter and reiterated that the company is committed to delivering 40% gross margins in the near term.
The company is reviewing its production footprint to ensure its supply is aligned with demand, and will consider shutting down facilities as part of a broader review of costs, said Chief Executive Officer David Klein, who joined the company from Constellation Brands Inc. a month ago.
“Clearly we have to do a better job managing inventory and overall working capital, we have to slow our capex spend, we will pull back on the M&A activity that the business has been doing and we need to do a better job with our P&L, so literally we need to work across every line item,” Klein said.
Bill Kirk, analyst at MKM Partners, called the Ebitda beat “surprising” given the costs associated with preparing for the rollout of newly legal products in Canada, including beverages, edibles and vapes.
“We had expected only small improvements from the prior quarter, but Canopy is showing a meaningful progression,” Kirk wrote in a note. “That said, the path to profitability still remains very unclear.”
(Adds comments from analyst call in paragraphs 7-9)
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