After Canopy Growth (NYSE: CGC) reported its first quarter 2021 results yesterday, the shares jumped about 10% in the pre-market trading and closed the regular session by surging 7.82% to $17.93. Contrary to the fourth quarter 2020 results, Canopy Growth’s net loss shrank in Q1 2021, helped by the 22% revenue growth and a reduction in expenses.

Q1 results

The Canada-based cannabis producer’s loss of C$128 million or C$0.30 per share in the first quarter was better than the C$66 million registered in the first quarter of 2020.

Canadian net revenue decreased 11% year on year, due in part to the restricted cannabis retail operating environment in response to COVID-19 pandemic as well as increased competition. B2B net revenue decreased 10% over the last year.

Canopy Growth (CGC) Q1 2021 Earnings AlphaGraph

Containing costs

The company had reduced its headcount by more than 18% since the beginning of the year. Operating expenses had declined by 23% versus the year-ago quarter and the cash burn was reduced by more than 50% from the prior-year period.

Acquired businesses

This Works and Biosteel, the acquired businesses of Canopy Growth, performed in line with expectations in the restricted COVID-19 environment. For Biosteel, an increase in sales from the e-commerce channel was offset by a significant decline in traditional retail sales caused by the closure of many brick-and-mortar retailers in Canada due to COVID 19. Canopy expects an improved performance from Biosteel driven by the easing of COVID-19 retail restrictions in Canada as well as expanded distribution in the US in the coming months.

Reopening stores

Since Canopy Growth opened 22 corporate stores in the latter half of Q1, B2C sales have returned to pre-COVID levels. Canopy Growth estimates to open in excess of 1,200 stores across Canada by the end of calendar year.

COVID-19 and recovery

Like other companies, Canopy Growth is also facing a recession caused by COVID-19. The company estimates that the legal sale of recreational cannabis in the US, if legalized in all 50 states now, would generate more than $175 billion by 2025 in federal sales, business and payroll taxes and add nearly 1.6 million jobs by 2026. Canopy Growth expects cannabis industry to be a key driver of the economy when the pandemic is under control.

Outlook

During the earnings call, when answering an analyst’s question on the factors that would affect the future quarters, CFO Mike Lee said,

“Consumers are still spending on cannabis. And with more stores coming, we think that’s going to continue to open up the market. And I know that there’s lots of questions around the future of pricing and value and all of that, but we believe that it’s growing the market, and we believe that we’ve got the production capability that’s going to demonstrate real strong potential as we build toward that market. So all signs are good for Q2.”