Workers produce medical marijuana at Canopy Growth Corporation’s Tweed facility in Smiths Falls, Ont., on February 12, 2018. Canopy Growth Corp. reported a fourth-quarter loss of $61.5 million as it prepared for the launch of the legal Canadian recreational cannabis market later this year. The loss amounted to 31 cents per share for the quarter ended March 31 compared with a loss of $12 million or eight cents per share a year ago. THE CANADIAN PRESS/Sean Kilpatrick

Canopy Growth reports $61.5M Q4 loss as it prepares for legal marijuana market

TORONTO — Canopy Growth Corp. posted a wider-than-expected loss in its most recent quarter, which included a spike in costs as the licensed marijuana producer gears up for the legalization of recreational pot in October.

The Smiths Falls, Ont.-based company reported a net loss attributable to shareholders of $61.5 million, compared to a $12 million loss during the same quarter a year ago. Analysts had expected a $12.8 million loss, according to those surveyed by Thomson Reuters Eikon.

The pot producer’s net loss for fiscal fourth quarter ended March 31 was driven in large part by a 149 per cent surge in overall operating expenses to $58.2 million from $23.4 million in the same period of 2017.

Canopy has been investing heavily to ramp up production ahead of Oct. 17, when recreational pot becomes legal across Canada, after which it expects to “generate significantly greater revenues” starting in the second quarter of fiscal 2019.

“What we’ve done is absolutely the smartest thing you could do, which is be ready to lead and dominate,” said Canopy’s chief executive Bruce Linton in an interview on Wednesday.

Canopy’s revenue for the quarter of $22.8 million was up from $14.6 million in the same quarter last year, but fell short of the $25.05 million expected by analysts.

Shares of Canada’s biggest licensed producer closed down more than 10 per cent at $36.93 on the Toronto Stock Exchange on Wednesday.

The stock dip may indicate the market is shifting its focus away from potential to measures of profitability “and wants to see more performance on that front in this space,” said Russell Stanley, an analyst with Echelon Wealth Partners.

The company expects to be profitable by the end of the calendar year, or its fiscal third quarter.

“Investors may hold them to that,” said Stanley.

Linton said the company has intentionally not been profitable, moving to invest in its platform rather than “robbing the future” of profitability.

“Anybody who sold today, I would love to hear from them at the end of Q4, calendar year, and see how they’re feeling at that time,” he said.

Analyzing marijuana company earnings is tough because of accounting rules used in the agriculture industry that require companies to put a value on their pot plants before they are harvested, and approaches differ between producers on how to apply these guidelines.

And on Wednesday, Canopy said it would no longer report its weighted average cost per gram metric, a measure that some companies had moved to adopt in an effort to provide transparency on the cost of production. The company said it would consider reporting a similar measure that is instead calculated in milligrams of THC or CBD cannabinoids, though it did not provide that metric.

The weighted average cost per gram measure was “fundamentally dumb and irrelevant,” said Linton.

“Do you actually care how much the vegetative matter weighs, or do you care how much the active ingredients are as a measure?” he said. “Because that’s what has to happen…. And I suspect you will see the majority of the other LPs immediately follow suit.”

The weighted average cost per gram metric hadn’t been consistently used among pot companies, but was useful for tracking an individual company’s progress over time, said Mark Rosen, co-founder and director of research for forensic accountancy Accountability Research Corp.

It’s not uncommon for a company to replace or change a metric, but unusual that they didn’t immediately replace it with another measure, both Stanley and Rosen said.

“I wouldn’t be surprised if they’re waiting to get past this big hump, when their full production for the recreational market comes on and you’re seeing a little more normal numbers, a little more reflective of what they hope to have in the future,” Rosen said.

Linton said the company already has an internal working process to measure for milligrams of active ingredients, but the company must go through an accounting standards process before rolling it out. He expects this process will take one or two quarters.

Canopy’s total licensed footprint is now more than 2.4 million square feet, with another 3.2 million square feet of expansion underway, the licensed producer said, adding it has signed supply agreements with all provinces that have announced their plans to this point.

Canopy also plans to have as many as 18 cannabis retail stores ready on Oct. 17 — six in Newfoundland, five or six in Manitoba and Saskatchewan.

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