Canopy Growth (CGC) Q2 2027 earnings review
Canopy Growth doubles international sales, but operating losses stay flat
Canopy Growth, the Canadian cannabis and vaporizer producer, grew international medical sales while its overall operating loss barely budged. Net revenue rose 22% to $81 million as European demand rebounded and the acquired MTL Cannabis business lifted Canadian sales. Chief executive Luc Mongeau secured European export certifications for the Smiths Falls and Kincardine plants, yet gross margin excluding one-offs slipped to 31% on lower government reimbursement rates for Canadian veterans. By our math, the group needs about a 35% margin at current sales and overhead to break even.
| Net revenue | $81.4M +22% from a year ago (includes acquired MTL Cannabis) |
|---|---|
| International cannabis revenue | $12.3M +141% from a year ago, +28% from last quarter |
| Gross margin, excluding one-offs | 31.2% 32.8% a year ago; 34.8% needed for breakeven by our math |
| Full-year operating profit outlook | Unchanged positive adjusted EBITDA during fiscal 2027 |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because progress in Europe and cannabis margins was offset by a downturn in vaporizers and stalled operating profit. International revenue grew for a fourth straight quarter and cannabis gross margin excluding one-offs rose 3 percentage points from last quarter, but Storz & Bickel vaporizer sales fell 4% and the quarterly adjusted EBITDA loss has sat near $3 million for a full year.
The question now is whether second-half margin gains and holiday vaporizer sales can close the $3 million quarterly profit gap. One view is that European flower exports and MTL cost savings will push the company to breakeven; the other is that veteran price cuts and weaker device demand will keep it loss-making. Third-quarter gross margin and holiday device sales will settle it.
🐂 Bull Case
European Sales Rebounded After Supply Fixes
Canopy Growth exports medical cannabis from Canada to Europe and Australia. A year ago, supply bottlenecks in Europe caused international revenue to drop to $5.1 million. Since then, chief executive Luc Mongeau has reworked the supply chain to win back pharmacy orders.
"Our international business delivered 141% net revenue growth in the second quarter of fiscal year 2027 driven by strong medical cannabis sales in Germany and Poland," Mongeau said. Sales outside Canada reached $12.3 million, rising 28% from last quarter for a fourth straight quarter of recovery.
The cannabis producer also cleared two regulatory hurdles earlier than planned. European regulators certified its Smiths Falls plant in Ontario for "softgel manufacturing with primary packaging of softgels, oral liquids and dried cannabis flower" and renewed the export certificate at its Kincardine grow site. The group also started shipping four flower strains into the United Kingdom and hired a country manager for Germany.
What to watch: international revenue in the third quarter, when UK shipments and new Australian products run for a full period. Another sequential gain above $12.3 million would show true European demand rather than a one-time restocking bounce.
Cannabis Gross Margin Stepped Up Sequentially
Canopy Growth bought rival grower MTL Cannabis at the end of last fiscal year to add flower supply and lift its profit margins. In the first quarter, cannabis gross margin excluding one-off acquisition charges sat at 26.2%, raising doubts about the deal's benefits.
This quarter, the cannabis division's gross margin excluding one-offs climbed 3.1 percentage points from last quarter to 29.3%. That improvement came as Canadian medical revenue grew 18% to $25.8 million and Canadian recreational sales rose 17% to $28.1 million, helped by MTL flower and more insured medical patients.
The sequential step-up matters because it happened while the Canadian government cut the price it pays for veterans' medical cannabis. Higher flower volumes and a bigger share of high-margin European sales helped absorb that price cut during the quarter.
What to watch: cannabis gross margin excluding one-offs in the third quarter, when management expects cultivation yield gains to arrive. A move above 31% would put the division back ahead of last year's margin level.
🐻 Bear Case
Operating Profit Has Not Moved for A Year
Finance chief Tom Stewart said the company is progressing toward profitability quarter after quarter, "placing us within reach of reporting positive adjusted EBITDA during fiscal 2027." Adjusted EBITDA is operating profit before interest, taxes, depreciation and one-off items, and it is management's main profit target.
The quarterly numbers tell a flatter story. The adjusted EBITDA loss was $2.9 million this quarter, almost unchanged from the $3.0 million loss a year ago, the $2.9 million loss two quarters ago, and the $3.2 million loss last quarter.
- Cost of making products: 71.3% of net revenue, up 4.2 percentage points from a year ago
- Consolidated gross margin excluding one-offs: 31.2%, down 1.6 percentage points from a year ago
- Selling and administrative overhead: 48.8% of net revenue, down 5.7 percentage points from a year ago
Overhead savings and MTL's revenue were wiped out by higher production costs and lower government reimbursement rates for Canadian veterans, which the release said was the main drag on cannabis margins. By our math, covering the current $28.3 million quarterly cash overhead at today's revenue requires a 34.8% gross margin excluding one-offs, 3.5 points above where Canopy sits now.
What to watch: consolidated gross margin excluding one-offs in the next two quarters. Unless it climbs toward 35%, the company cannot reach positive adjusted EBITDA this fiscal year on its current cost base.
Vaporizer Sales Slipped Back Into Decline
Storz & Bickel, Canopy Growth's German maker of medical and portable vaporizer devices, returned to growth last quarter and posted a 48.4% gross margin with the help of US tariff refunds. Management has leaned on the unit's higher margins to offset losses in cannabis.
In the second quarter, Storz & Bickel sales fell 4.4% from a year ago and 5.9% from last quarter to $15.1 million. The company blamed "decreased customer spending on Storz & Bickel products in certain geographic regions." Without last quarter's tariff refunds, the division's gross margin dropped 9 percentage points from the first quarter to 39.4%.
This reversal hurts because the vaporizer business was lapping a weak quarter a year ago, when sales had already fallen 10%. Softer consumer demand for devices makes the company's second-half push for profitability more reliant on cannabis margin gains.
What to watch: third-quarter Storz & Bickel revenue, which covers the holiday shopping season and Black Friday. A year-over-year drop in its biggest seasonal quarter would show that demand for the VEAZY device has cooled.
Risks this quarter didn't answer
Four standing concerns could not be tested from the earnings release alone and depend on the conference call or quarterly filing.
- Underlying sales without MTL Cannabis: management still combines MTL with existing Canadian operations, hiding how much Canadian medical and recreational sales grew on their own.
- MTL cost savings: the release gave no update on the $8 million of annualized integration savings actioned last quarter toward the $10 million target.
- Supply chain cost plan: management gave no dollar savings target or timeline for the supply chain overhaul announced after the first quarter.
- Remaining share-issuance capacity: weighted average shares held steady from last quarter, but the release did not state how much capacity remains on its at-the-market share sale program.
👓 Other Themes
U.S. Asset Write-Downs Drove the Net Loss Jump
Canopy Growth holds non-voting stakes in U.S. cannabis businesses through an unconsolidated vehicle called Canopy USA. The company's net loss widened by $35.7 million from a year ago to $40.7 million because it booked $35.8 million in non-cash fair value write-downs on those Canopy USA assets amid slow U.S. regulatory progress. Excluding that charge, the net loss was $4.9 million by our math.
💲 Other KPIs
Cash burn slowed in the second quarter. Free cash outflow — operating cash flow minus factory spending — narrowed from $19.2 million a year ago and $25.7 million in the first quarter. Operating cash burn dropped to $12.6 million, while spending on cultivation equipment more than doubled from a year ago to $3.0 million.
Net cash fell by $22.8 million from the first quarter by our math. Canopy Growth ended September with $324.5 million in cash and short-term investments against $245.9 million in total debt. The current portion of long-term debt due within a year rose to $43.1 million from $16.2 million in March.
Share issuance paused during the quarter, with the average share count rising 0.2% from the first quarter. Compared with a year ago, the share count is still up 54.4% after heavy equity sales and the MTL Cannabis acquisition diluted existing holders over the past year.
🔮 Guidance
Unchanged. Finance chief Tom Stewart reiterated the plan to report positive adjusted EBITDA during fiscal 2027, meaning at least one profitable quarter in the second half. By our math, eliminating the current $2.9 million quarterly loss requires about $3 million in extra quarterly gross profit or cost cuts across the third or fourth quarter.
❓ Key Questions
How much revenue did MTL Cannabis add this quarter?
Canadian medical and recreational cannabis grew 18% and 17% from a year ago, but the prior year did not include MTL Cannabis. Investors need the standalone revenue figure to know if the older Canadian brands are growing or shrinking.
Why did Storz & Bickel demand drop before the holidays?
Vaporizer sales fell 4% against an easy year-ago comparison and dropped 6% from last quarter. Management has not said which regions weakened or whether the slowdown has carried into the holiday quarter.
Where do MTL cost savings and supply chain cuts stand?
Last quarter management was executing $8 million of annualized MTL cost savings and launched a new supply chain cost program, yet cash overhead stayed near $28 million in Q2. What savings hit the second quarter, and how much remains for the second half?
Why did current debt jump to $43 million?
The current portion of long-term debt rose from $16.2 million in March to $43.1 million in September despite January's debt extension to 2031. What maturities or amortizations make up that near-term payment?