Is Canopy Still the Top Canadian Cannabis Company After Earnings?

Last week, some of the top Canadian pot companies released their quarterly earnings reports, and every single one of them performed worse than expected. Leading this mediocre showing that horrified investors was Canopy Growth (NYSE:CGC)…

Canopy’s net revenues of 76.6 million Canadian dollars declined 15% sequentially and missed analyst estimates by some margin, and the company reported a net loss per share of CA$1.08. To be fair, Canopy’s bottom line was impacted by a CA$32.7 million restructuring charge: After originally overestimating the demand for its oils and softgels products, the company has been modifying its portfolio since last quarter — both in terms of the products it offers in these segments and their respective prices — to better reflect the market demand and avoid the risk of oversupply.

But even setting that aside, the company’s overall performance was bad, at best. Given its lackluster performance during the last quarter (and for that matter, the prior quarter too), it might be time to consider whether Canopy still deserves to be considered the top dog in the Canadian cannabis market.

One company might overtake Canopy

Canopy has had an edge over most of its competitors for three major reasons. First, the company boasts one of the highest projected peak production capacities in the industry. Second, Canopy has a partnership with Constellation Brands (NYSE:STZ), which gave the company access to the cash it needed to fund its expansion efforts. Third, Canopy is one of the few Canadian pot companies that has supply deals signed with every province.

These advantages aren’t going away anytime soon, and while many other cannabis companies can rival Canopy in one or two of those categories, none have managed to check all three boxes so far. Further, Canopy’s horrible performance during the second quarter was largely due to industry-wide troubles. (True, there is the restructuring charge the company incurred due to its own issues.)

Still, for the most part, the Canadian market has been an equal-opportunity saboteur. In particular, the biggest issue that has plagued Canadian cannabis companies has been the fact that regulatory agencies have been incredibly slow at issuing licenses, especially in the province of Ontario.

Canopy CEO Mark Zekulin said in the company’s second-quarter earnings conference call, this “has resulted in half of the expected market in Canada simply not existing.” There’s just one cannabis store for 600,000 people in Canada’s most populated province. Given this issue and others — such as the persistence of illicit cannabis markets — perhaps Canopy still deserves to be atop the ladder. All these arguments in favor of Canopy carry some weight, but there is one company that managed to vastly outperform Canopy during their latest respective reported quarters: Aphria (NYSE:APHA).

During its last quarter, Aphria recorded a total-revenue figure of CA$126 million, and while that represented a slight sequential decrease, it is head and shoulders above Canopy’s revenue. Aphria also reported a net income of CA$16.4 million, which compares favorably to Canopy’s net loss. Aphria’s average selling prices for its recreational and medical segments were CA$6.02 and CA$7.56, respectively, while Canopy’s medical and recreational average selling prices came in at CA$8.20 and CA$5.66, respectively. Aphria’s revenue guidance for the full fiscal year is between CA$650 million and CA$700 million, and the company also plans on being profitable on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis.

Canopy’s goal to achieve a billion dollar run rate by the end of the year may…

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