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Aug 14, 2017

Canopy Growth CEO to investors: If you want a quick profit, look elsewhere

Canopy Growth plans more value-add products as marijuana commoditized

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The CEO of Canopy Growth says his company’s goal is not to turn a profit in the short term, but to build what he believes will be a truly disruptive business in the long term.

“In warm up I can be profitable, but the game starts in about 6 to 12 months,” said CEO Bruce Linton, in an interview on BNN, while referencing the potential for cannabis to become legal in Canada.

“So, what you really want us to do is to…prepare with the volume product mix, brands. Finished products are what people are going to want to buy under medical and adult access,” he said.

Canopy Growth's revenue more than doubled in its fiscal first quarter, but that wasn't enough to push it to profitability.

Canada's largest licensed cannabis producer said on Monday its revenue surged 127 per cent to $15.9 million in the three-month period ending June 30.

Canopy said it sold 1,830 kilograms and equivalents at an average price of $7.96 per gram, up from 984kg and $7.09, respectively, a year earlier.

The company's quarterly net loss rose to $4.4 million, or 3 cents per share, from $3.9 million, or 4 cents per share, a year earlier. Canopy noted its loss in the latest quarter included a non-cash $10.7-million accounting gain.

Linton, however, is focused more on Canopy’s potential if Ottawa follows through with its pledge to legalize cannabis.

“This can be a very substantial disruptive competitor to alcohol,” said Linton. “When you think about that, how you consume it, where you consume it, who profits from the presentation of that in the restaurant, I would expect Canada to become a pretty competitive disruptive environment for all the alcohol producers over the next three years.”

Canopy Growth loss widens as revenue spikes

Vahan Ajamian, analyst with Beacon Securities, talks about the latest earnings from Canopy Growth.

The strategy makes sense for a company striving to be the top player in an emerging space, according to Vahan Ajamian, an analyst with Beacon Securities.

“If you look at the medical market today, we estimate it somewhere around $350 million annualized in Canada. Whereas, if you look out a year – or maybe it takes a few years post-legalization – you’re talking about a $5-10 billion industry, potentially,” he told BNN in an interview on Monday.

“So, I think the strategy is very clear: They want to be the number one, dominant company in terms of market share, patients and eventually users, revenue, product availability and so-forth.”

Canopy’s market cap reached $1.5 billion and remains there even as its stock lost 3.5 per cent of its value through the end of trading Friday amid investor uncertainty ahead of the anticipated legalization of recreational cannabis use in Canada next year.

“You’ve got relatively modest sales, a huge market cap – it’s all based on the future expectations for earnings,” said John Stephenson, president and CEO of Stephenson & Company, in an interview with BNN Monday. “I think there’s enough questions surrounding this whole sector that it’s probably a no-touch for most retail investors.”

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