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Canopy Growth’s Earnings Continue to Disappoint

Story Highlights

Canopy Growth Corporation hasn’t lived up to the initial weed-stock hype it experienced several years ago. Based on its latest earnings report, it appears that it still has a long way to go if it plans on reaching all-time highs again. Can it cut costs enough to achieve profitability?

Canopy Growth Corporation (TSE: WEED) (CGC) engages in the production and sale of medical cannabis. The company offers products including oils and concentrates, soft gel capsules, and hemp. It focuses on the treatment of chronic pain, seizures, muscle spasms, nausea, and loss of appetite.

Canopy Growth recently reported its fourth quarter and Fiscal Year 2022 earnings. The results were not good, as revenue fell 5% in Fiscal Year 2022 versus 2021. The quarterly results were even worse, as revenue decreased 25% in Q4 2022 to C$111.8 million compared to Q4 2021. This missed analyst expectations by C$18.54 million.

Free cash flow was negative. The outflow in the quarter increased 2%, coming in at C$127 million, which was attributable to higher interest payments. However, the outflow decreased 8% for the fiscal year due to lower capital expenditures.

Nonetheless, the company plans on reducing costs over the next 12 to 18 months in order to achieve profitability. Canopy Growth is expecting to be adjusted EBITDA positive by 2024 by reducing expenses by C$100 million to C$150 million.

Hedge Funds

Although the share price keeps falling, hedge funds seem to positively view Canopy Growth, as they increased their holdings by 218,700 shares in the last quarter.

This is despite the fact that Canopy Growth insiders have been selling significantly over the past 12 months. Considering that the stock has not performed well for a long time, investors may be better off taking cues from insiders as opposed to hedge funds when it comes to Canopy Growth.

Wall Street’s Take

Turning to Wall Street, Canopy Growth has a Moderate Sell consensus rating based on three Holds and seven Sells assigned in the past three months. The average Canopy Growth price target of C$7.05 implies 16.7% upside potential.

Final Thoughts

Canopy Growth has yet to live up to the initial hype it experienced several years ago. Based on its latest earnings report, it appears that it still has a long way to go if it is to ever reach all-time highs again. Thus, investors are better off following insider transactions because the ones who sold have so far been the only ones who made the right decisions.

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