Canopy Growth Corp. (NYSE:CGC)(TSX:WEED) announced Monday it received a license from Health Canada to grow legal cannabis at an outdoor site in northern Saskatchewan. Wasting little time, the leading Canadian pot producer said it has already started planting at its new 160-acre site which it is considering to be a test site for future outdoor operations to produce low-cost cannabis.
At this stage in the summer planting season we view this as a pilot and ramp up project for outdoor cannabis cultivation, though the team will do everything it can to deliver low cost yields this year.
– Mike Zekulin, President and Co-CEO of Canopy Growth
Growing cannabis indoors is proving to be costly for Canadian firms, which is making outdoor cultivation more attractive. Growing outdoors might be in a less controlled environment, but Canopy is looking at producing more cannabis at a fraction the cost as a key component in its strategy and ability to deliver more products to consumers, including edibles like chocolate and beverages. The next generation of cannabis products will be legalized in Canada in October and the first products are expected to be ready for sale by mid-December.
Outdoor growing gives Canopy Growth the ability to solve two problems at once: cost and capacity. Being able to bring down its expenses is going to be crucial for the company as it reported major losses in last week’s quarterly results that caused its share prices to fall sharply.
Canopy Growth is ramping up production
The Smith Falls, Ont.-based company is going to need all the capacity it can gather to supply the upcoming edibles and derivatives market. Canopy says it has “tens of thousands of square feet devoted to the production of chocolates” and that it has capacity to produce 850,000 chocolates every month. On the beverage side, the company has devoted an additional 125,000 square feet of bottling space that will help the cannabis giant produce as many as five million beverages per month, although it expects it won’t be fully operating until the second quarter of 2020.
Other monthly production estimates include:
- 800,000 pre-rolled joints
- 15 million softgels
- 2 million vapes
The increased in production across various segments will help Canopy continue to grow its business in Canada, the company says. With revenues already reaching over $226 million during its last fiscal year, the company has already proven to be a major industry player but shareholders are waiting to see if revenues will reach levels where Canopy can actually turn a profit.
However, it will be just as important for the company to grow its revenues at a good margin. Otherwise, it may be more of the same with significant sales growth accompanying bigger net losses, which hasn’t gone over well with investors.