Markets

Why Neptune Wellness Solutions Stock Sank Today

What happened

Shares of Neptune Wellness Solutions (NASDAQ: NEPT) were sinking 11.9% as of 3:37 p.m. EDT on Thursday. The company reported its fourth-quarter earnings results after the market closed on Wednesday. Neptune's net loss of 12.4 million in Canadian dollars was much worse than the CA$4.8 million loss in the prior-year period. The company's revenue also fell nearly 19% year over year to CA$5.7 million.

So what

Neptune's relatively weak Q4 results need to be put into perspective. The company has enjoyed a streak of positive news in recent weeks that has helped propel Neptune stock up nearly 70% so far in 2019.

Magnifying glass on top of a cannabis leaf

Image source: Getty Images.

In June alone, Neptune signed multi-year extraction agreements with Tilray (NASDAQ: TLRY) and The Green Organic Dutchman (NASDAQOTH: TGODF). The Tilray deal included extracting a minimum volume of 125,000 kilograms of cannabis and hemp over three years. Neptune's arrangement with TGOD was the biggest publicly announced cannabis extraction deal ever, with the company providing extraction services for at least 230,000 kilograms of cannabis over a three-year period.

The company also announced a major acquisition in May of U.S.-based hemp processor SugarLeaf Labs. This buyout will give Neptune an extraction capacity of 1.5 million kilograms. The deal positions the company to compete in the growing U.S. hemp-derived CBD market.

All of these deals point to a brighter future for Neptune than its fourth-quarter performance might indicate. 

Now what

Don't expect significant improvement for Neptune in its fiscal 2020 first quarter. The company anticipates cannabis extraction revenue of less than CA$1 million in the quarter. There are several reasons for this, including limited biomass inventory for extraction and limited capacity.

However, as the deals with Tilray and TGOD kick in and extraction capacity increases, Neptune's fortunes should improve tremendously. The company could see a nice uptick in revenue growth beginning in its fiscal second quarter.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

NEPT TLRY TGODF

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