Canopy Growth Corp (WEED, CGC), the largest cannabis company in the world, jumped 16% today after reporting third-quarter earnings that beat expectations and showed sharp improvements from last year.
Here are a few highlights directly from the press release.
- Reported Net Revenues increased 62% over Q2 2020, or 13% excluding the impact of portfolio restructuring charges.
- Total operating expenses decreased 14% versus Q2 2020 primarily due to a $20 million reduction in G&A expenses and over $31 million lower stock-based compensation versus the prior quarter.
- Maintained leading market share in retail, at an estimated 22%, of the Canadian recreation market as we saw a strong demand for both premium and value priced dried flower and pre-rolled joints.
Here’s a link to the full press release if anyone wants to take a look.
Canopy is Making a lot of Progress in a Short Amount of Time
This was a hugely important earnings report. Even though Canopy struggled in 2019 and fell well short of expectations, it shows that Canopy is making the needed adjustments to grow sales and increase margins – which is the exact formula for Canopy to move into profitability in the next few years.
This report also shows how much bad news has been priced into Canopy. That’s a good thing because moving forward it means that any good news will have a big impact on shares. And that’s exactly what we saw today.
The good news gave Canopy and the broader cannabis sector a much needed boost on the chart. Canopy gained 16% on the day – and just as important Canopy is now trading at the top end of the 4-month range and looking to break out into a new high for 2020.
Take a look at the movement below.
What Should We Expect Moving Forward?
This strong report should set the tone for the cannabis sector for the next few months. I think this report confirms that cannabis stocks have finally achieved a long-term bottom and should be headed higher.
Further out – the industry still faces challenges – particularly these ridiculous tax rates.
However I see a lot of catalysts on the horizon.
- Canada set to add hundreds of dispensaries in 2020.
- Cannabis extracts such as edibles and vapes off to great start in Canada.
- Most US states outside of California seeing huge sales growth.
- At least 11 US states looking to go legal in 2020.
- Tons of bad news priced into sector – good news now a big catalyst.
For the time being we have a nice win in hand.
My plan for my wealth management clients is to sit tight with our cannabis stocks and look for more follow through buying in the next few weeks and months.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading. Michael Vodicka owns shares of Canopy Growth Corp (WEED) at time of writing.