Why Canopy Growth Stock collapsed today and took OrganiGram and Cronos with it



What happened

Marijuana stocks fell today after the industry leader Canopy growth (NASDAQ: CGC) the share announced this morning a larger than expected tax loss for the fourth quarter of 2021.

As Canopy’s last quarter of fiscal 2021 approaches, analysts polled by S&P Global Market Intelligence predicted that the company would lose $ 0.20 per pro forma share and $ 0.22 per share when earnings were calculated in accordance with generally accepted accounting principles (GAAP). Losses for the full year were estimated at $ 0.62 per pro forma share and $ 0.72 per GAAP share – but Canopy missed those estimates.

For the fourth quarter of 2021, Canopy claims to have lost $ 1.85 per Canadian share ($ 1.54). For the year, losses totaled C $ 4.69 ($ 3.90). Cronos’ quarterly losses were only about half of those suffered in the fourth quarter of last year, but annual losses were up 23% year-on-year.

Image source: Getty Images.

So what

Canopy Growth shares fell 4.6% until 11:15 a.m. EDT in response to bad news, pushing shares of Canadian rivals down OrganiGram (NASDAQ: OGI) and Cronos (NASDAQ: CRON) in sympathy. OrganiGram stock is now down 7.5% and Cronos 8.5%, although neither stock has bad news to report.

But is it fair? Was the Canopy news still bad news?

Canopy doesn’t seem to think so. Canopy began its report by boasting that its revenue grew 37% in fiscal 2021 “with strong double-digit growth in the cannabis and other consumer products businesses,” and he insisted on the fact that it “maintains the No. 1 market share of the total. [marijuana] flower in Canada. In addition, management says it “remains on track to achieve positive Adjusted EBITDA in the second half of fiscal 2022.”

Now what

But consider all the qualifications needed to make that last statement: Canopy was unable to promise actual earnings under GAAP, so it instead promised “earnings before interest, taxes, depreciation and amortization” (EBITDA). – and not even true EBITDA, but just an “adjusted” variant of it. All of this suggests that real profitability remains far, far away, even for one of the strongest players in the marijuana industry.

Indeed, according to the latest estimates from S&P Global Market Intelligence, it will be until 2024 before Canopy publishes its first net profit under GAAP accounting standards. Likewise for OrganiGram – and Cronos investors will have to wait until 2025 before GAAP benefits arrive.

If investors start to get impatient with profits, I can’t say I blame them.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



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