Canopy Growth losses sends pot stocks tumbling

©Agence France-Presse

Canada's largest cannabis company, Canopy Growth, posted larger than expected losses on Thursday, sending its and rivals' stock prices tumbling after also saying it would soon stop expanding in Canada.

Expectations were high for the brand new industry after Canada legalized cannabis for recreational use in October 2018.

But after a strong start, growth has stalled.

Canopy Growth recorded a Can$375 million (US$282 million) loss in the second quarter, or Can$1.08 per share. Analysts had forecast a loss of just Can$0.39.

Investors reacted by pulling back from the sector. Canopy Growth's share price plummeted 16.8 percent in morning trading (1700 GMT), and dragged down other pot stocks with it, such as Aphria (-5.4 percent to Can$5.60) and Hexo (-8.3 percent to Can$2.41), which also recently released disappointing results.

Industry-wide, cannabis company valuations are down about 40 percent since the start of the year.

Canopy Growth and others blamed their woes on an oversupply of cannabis and returns, after ramping up production with the opening of several new greenhouses in recent months despite a lack of retail outlets.

Ontario and Quebec provinces, for example, have opened fewer than 50 cannabis storefronts combined, so far.

Aurora's chief corporate officer Cam Battley said in September that demand for cannabis had reached a "plateau."

The black market's undercutting of licensed distributors with significantly lower prices has also hampered sales of legal pot.

Canopy Growth recorded exceptional charges of nearly Can$49 million in this quarter alone due to unsold products and price discounts.

"The last two quarters have been challenging for the Canadian cannabis sector," Canopy Growth chief executive Mark Zekulin acknowledged in a statement.

"However, we believe these conditions are a short-term headwind in what is a brand-new industry," he added.

Zekulin and other cannabis executives are pegging their hopes for a turnaround on the sales of cannabis edibles and drinks, which are expected to hit storeshelves in December.

Canopy Growth spent five years investing in market research, product development and setting up production facilities.

"As the company nears completion of its expansion program in Canada, we expect our gross margins to continue to improve in the coming quarters when all of the cultivation and processing are in use and approaching planned capacity," it said.