Canopy Growth Corp. paid more in share-based compensation in its fiscal second quarter than it generated in revenue, MKM analyst Bill Kirk wrote Thursday.
"Separately, General & Administrative costs (C$87.9mn) were also greater than period revenue," Kirk wrote in a note to clients following the Canadian cannabis company's earnings. "This disappointing quarter, and with Canopy production levels still far greater than sell-through, becomes an industry issue that does not resolve quickly."
Other items the analyst noted from the report; Canopy posted a wider-than-expected loss for the quarter and sales of C$76.6 million that were lower than the C$90.5 million generated in the first quarter. The company had a C$32.7 million adjustment to revenue that was related to returns and pricing adjustments mostly due to oils and softgels.
"We do not consider this type of adjustment to be one-time, as it reflects returns and new pricing architecture and package assortment going forward," Kirk wrote. "We have long been concerned about Canopy's production levels relative to sell-through and the quality/age of inventory. We believe the returns and pricing adjustments, as well as a C$15.9mn inventory charge in the period, demonstrate this issue." The analyst rate the stock as neutral.
Canopy's U.S.-listed shares were down 7% premarket and have fallen 31% in 2019, while the ETFMG Alternative Harvest ETF has fallen 28% and the S&P 500 has gained 23%.