A big part of the investment thesis surrounding Canopy Growth (CGC) has centered on international expansion. The problem highlighted in a corporate update on international operations is that the business amounts to a whole lot of nothing with limited prospects for actual material revenues in the near term.
All About Prospects
Canopy Growth updated the market with new licenses and certifications, but the company provided very little on actual sales in global markets. A prime example is the license approval for over 35 million square feet of production space across three continents with little to no discussion about actual sales that is consistent with recent quarterly results.
In Latin America, Canopy Growth is licensed to produce 13.6 million square feet worth of THC or CBD dominant cannabis. The company discussed the plan to scale operations and meet existing Chilean and Brazilian patients with medical cannabis importing from Spectrum Therapeutics in Canada. The lack of details suggests the patient and revenue amounts are very minimal.
In Australia, Canopy Growth provided a medical cannabis patient registration now at 1,300 patients countrywide. The company failed to mention any details related to the amount supported via Spectrum Therapeutics.
The biggest update comes from Africa where Spectrum Therapeutics has been granted medical production covering two facilities with 21 million sq. ft. of outdoor grow space and 322,000 sq. ft. of indoor, outdoor or greenhouse space. The Lesotho facilities are one of the largest CBD cultivation sites in Africa and the world. On top of this plan, Canopy Growth has purchased 12 hectares of land in Cape Town to advance their South Africa operations.
Canopy Growth has substantial operations to grow cannabis, but the company has very little details on actual sales.
Not So Impressive
The company continues a pattern of disclosing a lot of potential, but Canopy Growth is always short on actual revenues from international locations. In the last quarter, international sales were only C$2.7 million. Sales were up 170% from only C$1.0 million in the prior December quarter.
The problem is that the international opportunity remains a fraction of the sales opportunity in North America. For the December quarter, net revenues were C$83.0 million placing the international operations at only 3.2% of quarterly sales. The company will provide FQ4/March quarter results on June 20, but investors shouldn’t expect any material change in the business. This corporate update says it all my discussing licenses and not actual sales.
The stock is down at $42 for a market cap of about $14 billion in part due to this reason. The market is no longer falling for potential in the sector when sales continue to disappoint, and Health Canada has delayed the rollout of consumables by a couple of months.
The forecast by the CEO for the company to reach sales over the next 12 months of C$1.0 billion is likely in jeopardy now.
The key investor takeaway is that Canopy Growth remains too richly valued considering the diminishing prospects within Canada and the lack of actual progress in international markets. Until the company starts discussing actual material patient prospects in global or domestic markets, the stock market will start to ignore these over hyped prospects.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: No position.