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Canopy Growth (NYSE: CGC) disappointed investors with its fiscal 2019 fourth-quarter results announced last Thursday evening. Although the company's net revenue increased, there were plenty of things to dislike. Canopy reported lower sales compared to the previous quarter for Canadian medical and recreational cannabis, as well as international medical cannabis.
Now that investors have had time to digest the Q4 results, the focus is now on what the future holds for Canopy Growth. The company's co-CEO, Bruce Linton, and its new acting CFO, Mike Lee, talked about what's on the horizon during Canopy's quarterly conference call Friday morning. Here are five things you can expect from Canopy Growth in the second half of 2019 -- and two things that you shouldn't.
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1. Capacity build-out
Lee perhaps said it best in his statement that Canopy is "building capacity in Canada, the U.S., and beyond." In the near term, it's the capacity expansion in Canada that will make the biggest difference for the company.
Canopy expects that it will harvest around 34,000 kilograms of cannabis in its fiscal 2020 first quarter, which ends on June 30, 2019. That's more than double the capacity the company had in Q4. Lee said that this higher level is "the beginning of a new normal" for Canopy. This added capacity should boost the company's sales as more retail stores open in Canada.
2. Improving margins
Although Canopy's gross margin declined in Q4 compared to the previous quarter, you can look for margins to improve in the second half of calendar year 2019. Lee said that the company is on track to deliver a gross margin of at least 40% by the end of its fiscal year, which ends on March 31, 2020.
The key to achieving this improvement ties into Canopy's capacity expansion. In the fourth quarter, underutilization at several large greenhouses hurt its gross margin. As renovations are completed, though, the company will generate higher revenue while its fixed costs remain relatively steady.
3. Rebounding Canadian medical cannabis sales
Canopy Growth's Canadian medical cannabis revenue in Q4 fell 41% from the previous quarter. Linton expressed confidence that the company's Canadian medical cannabis sales would rebound in the coming quarters, though.
One key reason behind Canopy's slumping medical cannabis revenue was its transition of brands, including Tweed, from focusing on the medical market to instead focus on the recreational market. But Linton said that Canopy's Spectrum medical cannabis brand is picking up sales momentum. In addition, he thinks that the company's clinical trials could produce positive results that enable it to attract more medical cannabis patients in the future.