November 14, 2018 / 11:52 AM / a month ago

Pot firm Canopy's loss widens as spending surges, shares fall

(Reuters) - Canadian cannabis producer Canopy Growth posted a bigger-than-expected quarterly net loss on Wednesday as it ramped up spending in the run up to the legalization of recreational use of pot in mid-October, sending its shares down 9 percent.

FILE PHOTO - Canopy Growth CEO Bruce Linton autographs a t-shirt after legal recreational marijuana went on sale at a Tweed retail store in St John's, Newfoundland and Labrador, Canada October 17, 2018. REUTERS/Chris Wattie

Marijuana companies in Canada have been pouring cash into their businesses to both fend off competition and open stores as the list of medical and recreational approvals for marijuana use globally grows.

In the reported quarter, Canopy’s operating expenses rose more than six times to C$180.6 million from C$27.7 million a year earlier.

Canopy has the money after drawing a multi-billion dollar investment from Corona beer maker Constellation Brands in August, a reflection of investors betting broader legalization in the United States may also be in the pipeline.

Chief Financial Officer Timothy Saunders said on a conference call with analysts that higher expenses are needed for brand recognition and for higher market share in the “new recreational market in Canada”.

Ever since Canada considered allowing adults to legally smoke recreational marijuana in April 2017, pot producers have been scrambling to keep up with anticipated demand.

Canopy Growth said it sold 2,197 kg and kg equivalent of cannabis in the quarter at an average price of C$9.87 per gram. That is up from 2,020 kg and kg equivalents sold at an average price of C$7.99 in the year-ago period.

Canopy Founder and Chairman Bruce Linton said the company has also been investing more on training over 650 customer service representatives about its marijuana-based products so as to ensure that “when you win, it’s not a random lottery”.

But high investments led the company to report a bigger quarterly net loss of C$330.6 million ($249.77 million), or C$1.52 per share, in the quarter ended Sept. 30.

Excluding items, Canopy lost C$1.50 per share and missed analysts’ expectation of 12 Canadian cents per share loss.

“I don’t think analysts were wrong on the target number, but I think they were early on the quarter,” Linton said on a conference call with analysts.

Revenue rose 33 percent to C$23.3 million in the quarter, but the rate of growth was lesser than rivals Tilray Inc and Aphria Inc.

Shares of the Smiths Falls, Ontario-based company were trading down at C$46.19 in Toronto Exchange.

($1 = 1.3236 Canadian dollars)

Reporting by Shanti S Nair in Bengaluru; Editing by Arun Koyyur

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