Cannabis firm Canopy Growth has posted a shares increase of over 13% following better than expected third quarter financial results.
Canopy Growth, the world's largest cannabis company by market capitalization, recorded a net revenue of $123.8 million and net loss of $124.2 million, or 35 cents per share. According to Refinitiv, these numbers are better than consensus estimates of $108.7 million revenue and a 50-cents-per-share loss.
Tim Seymour, founder of Seymour Asset Management and manager of the Amplify Seymour Cannabis ETF, said: "It's kind of a big exhale on still the most important company in the sector."
However, despite Canopy's encouraging financial results, the cannabis industry is still in the midst of a correction. Companies that have enjoyed financial rewards from expanding their operations are not forced to retrench and restructure in order to more closely align their businesses with the performance of legal cannabis markets.
In July 2019, the Constellation Brands-backed Canopy dismissed founder and co-chief executive officer (CEO) Bruce Linton and replaced him with former Constellation chief financial officer (CFO) David Klein. Other cannabis companies that saw CEO departures include California-based MedMen Enterprises and Canada-based Aurora Cannabis.
Discussing Klein's conference call with analysts, Seymour said that at Canopy, "we started to hear the voice of a CEO who clearly comes form a CFO's chair at a large, sophisticated consumer products company."
However, Seymour pointed out that while Canopy is often seen as an industry bellwether, its recent results should not be taken as a sign of a market turnaround. He argued: "I don't think this is a green light to buy the entire asset class."
"I do think there are going to be plenty of companies going out of business," he added.
During the conference call, Klein mentioned Canopy's plans to take "initial steps to right-size" the business in the next 90 days. He said: "We will pull back on the M&A activity that the business has been doing, and we need to do a better job with our P&L."
"So literally, we need to work across every line item," he added.
