A woman waves flags on the day Canada legalizes recreational marijuana at Trinity Bellwoods Park
(Photo: REUTERS/Carlos Osorio)

Canada's largest cannabis company reported a surprise quarterly loss of nearly $1 billion according to its reporting of its first-quarter earnings for the fiscal year ended June 30.

The loss translated to C$3.70 per share coming from previous C$40 per share. As of press time, Canopy shares were still down 13.8 percent and was at its lowest since January.

The massive loss was attributed to its one-time charge of C$1.2 billion resulting from the expiry warrants held by Constellation Brands. Another contributing factor was Canopy's decline in revenue from recreational cannabis. The company also had about C8 million of unsold products. 

Canopy's Q1 performance was particularly disappointing for the market since the cannabis company is not only the biggest in Canada but also the biggest in the world by market capitalization. Further, Canada has been at the forefront of marijuana legalization after becoming the only G7 country that legalized recreational cannabis.

The country has also been the second country, next to Uruguay, to legalized recreational or adult use of marijuana nationwide; unlike the United States where the legality of marijuana is subject per state law. The 2018 Farm Bill only legalized hemp and not the marijuana plant.

Even with this generally disappointing first quarter, Canopy excites the market with its reported harvest and growing inventory of cannabis products. The company harvested 40,960 kilograms of dried cannabis, an increase of 183 percent over the fourth quarter last year. It also reported increased international medical cannabis revenue by 209 percent. It also filed 56 patent applications, increasing its portfolio to 111 patents and 270 patent applications. 

Not only did Canopy's harvest a welcome boost to the company but its achievement has also been the largest quarterly harvest among Canadian pot producers. This could suggest that Canopy is leading the fight in the cannabis supply shortage in the country.

Canada did not anticipate the rush of consumers when it legalized marijuana in October 2018. In the early hours during its first day of legalization, most of the dispensaries and retail stores had already been out of supply.

The shortage had not been addressed at present with analysts saying that the pot companies should focus on increasing their harvest first instead of formulating new products. Based on its harvest, Canopy is in the right direction.

As mentioned, Canopy also had impressive product inventory amounting to C$394 million, including C$93 million of finalized brands. This suggests that the company is ready to participate in the market once Canada legalized cannabis edibles by October this year. 

Indeed, analysts' belief in Canopy remains to be unwavering. Canaccord Genuity gave it a speculative Buy rating and C$70 price target. BMO Capital Markets analyst Tamy Chen gave Canopy a Market Perform rating and C$60 price target. Eight Capital analysts Graeme Kreindler, meanwhile, maintained a Buy rating with C$70 price target.