Canopy will surely release more details when it publishes its third-quarter earnings report, scheduled for tomorrow before the market opens.
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Last week, both Aurora Cannabis and Tilray announced significant cost cuts. While Aurora Cannabis cut 25% of the company’s workforce and Tilray 10% of the company’s workforce, Aurora’s sales forecast was Canopy’s biggest problem.
The Canadian giant of the cannabis industry predicted weaker sales for the December quarter, but most of all did not result in any sales improvement in the March quarter. After Canopy reported several quarters of $ 90 million in EBITDA losses, the lack of revenue improvement is extremely problematic.
Analysts predict Canopy will sequentially increase sales by almost 25% sequentially in March quarter, without being logically expected. Not only is cannabis 2.0 products likely to fail due to lack of Alberta and Quebec banned stores and vapes in Ontario, Canopy has still not released THC beverages due to problems with scaling beverage products in production.
Excluding product returns and price changes in the second quarter, Canopy generated net sales of CAD 109 million before price adjustments and product returns. Revenues were slightly higher than the previous quarter, but both quarters resulted in EBITDA losses of over $ 90 million.
Adding Cannabis 2.0 products without the related revenue could potentially lead to an even bigger EBITDA loss in the third quarter.
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The scary part of the story for Canopy is that Aurora Cannabis had a much lower operating cost base, but the company continued to see a need to cut costs by almost 60% compared to the December quarter. The company increases from a quarterly expense level of $ 100 million to a maximum of $ 45 million.
For the second quarter, Canopy had adjusted operating costs to $ 160 million, or almost double Aurora Cannabis spending in the September quarter. The introduction of cannabis 2.0 products in Canada and CBD in the United States must again have increased these costs significantly.
Canopy has a cash balance of $ 2.7 billion to potentially gain market share in markets where Aurora Cannabis and competitors cut costs but the company still needs to rationalize costs. The cannabis giant cannot lose more than C $ 100 million a quarter while still spending on capital costs without watching the money cushion suddenly disappear from the hunt for bad markets.
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<p class = "Canvas-Atom Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Wall Street is divided almost equally between the bulls and them On the safe side, based on 15 analysts surveyed in the last 3 months, 7 Canopy stocks are buying and 8 are holding, and the average 12-month price target is $ 21.55, an increase of almost 10% compared to the current level (See Canopy stock analysis on TipRanks) “data-reactid =” 32 “> Wall Street is almost equally divided between the bulls and those who play it safe. Based on 15 analysts interviewed in the last 3 months, 7 Canopy stocks value a purchase, while 8 The average 12-month price target is $ 21.55, an increase of almost 10% over the current level (see Canopy stock analysis on TipRanks).
The most important aspect for investors is that Canopy is likely to face more hurdles in reaching its financial goals. The stock is far too expensive at $ 7 billion, while sales estimates for fiscal year 21 through March will fall below $ 500 million.
Investors have no good reason to pay more than 14 times forward transactions for a stock that has difficulty growing profitably. Canopy must drastically restructure the business to reduce operational cash burn before the stock is investable.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To get good ideas for trading cannabis stocks at attractive prices find reviews, visit TipRanks' Best stocks to buy“data-reactid =” 48 “> To find good ideas for trading cannabis stocks at attractive ratings, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ Equity Insights.