Canopy Growth cuts losses on pandemic-led rise in pot demand

·2 min read
FILE PHOTO: A sign featuring Canopy Growth Corporation's logo is pictured at their facility in Smiths Falls

By Shariq Khan and Arathy S Nair

(Reuters) -Canadian pot producer Canopy Growth Corp reported a smaller quarterly adjusted loss on Friday, as it benefited from cost cuts and a rise in cannabis use during the coronavirus pandemic.

People across North America have turned to marijuana for relaxation and entertainment during the months-long isolation caused by COVID-19, lifting sales of pot producers.

The sector has also drawn renewed investor interest as U.S. states legalize pot and hopes rise for federal marijuana reform, prompting Canadian pot producers to consider cross-border expansion plans.

"We continue to look at building out our position in the United States. We're not waiting around on permissibility," Canopy Chief Executive David Klein said.

The company's C$2.1 billion ($1.67 billion) of cash and short-term investments at the end of the first quarter are expected to help fuel the expansion, Klein added.

In a bid to turn profitable by this fiscal year, Canopy has also doubled down on its core Canadian market. Earlier in 2021, it bought rival Supreme Cannabis in a deal that made it the owner of four of the top ten marijuana brands in the country.

Canopy is also prioritizing higher-priced products such as premium cannabis flowers, pre-rolled joints and edibles, a move that is expected to improve its gross margins over the course of the fiscal year, finance chief Mike Lee said.

The focus on the higher-priced segment and cost cuts helped Canopy's adjusted gross margin expand by 14% in the quarter. Adjusted core loss narrowed to C$63.6 million, from C$92.2 million a year earlier.

But a 23% rise in revenue missed analysts' estimates as lockdowns in Germany hit its business.

Increasing pot demand and a larger market share will help Canopy improve its revenue and profitability in the second half, Lee said.

($1 = 1.2508 Canadian dollars)

($1 = 1.2559 Canadian dollars)

(Reporting by Shariq Khan in Bengaluru; Editing by Aditya Soni)