Staff work in a marijuana grow room that can be viewed by at the new visitors centre at Canopy Growths Tweed facility in Smiths Falls, Ont. on Thursday, Aug. 23, 2018. Canopy Growth Corp. reported a loss of $330.6 million in its most recent quarter as it ramped up spending ahead of the legalization of recreational marijuana in Canada. THE CANADIAN PRESS/Sean Kilpatrick

TORONTO - Canopy Growth Corp.'s shares fell more than 10 per cent after the cannabis producer reported a wider quarterly loss and revenue slowdown as operating expenses soared ahead of Canada's legalization of recreational pot, which also served as a "distraction" for medical patients.

The slowdown in revenues during the quarter ended Sept. 30 stemmed from "hiccups" in shipping medical cannabis to Germany and the "hubbub" around the legalization of adult use pot on Oct. 17 distracting its medical patient base, said Canopy's co-chief executive Bruce Linton.

There was little revenue during the quarter from the Canadian adult use market, with only limited shipments "stress testing" the system with provinces and territories, he added.

"It is the first time in our history that I'm aware of that we actually had a slowdown, but it was more of a distraction than a pattern," Linton told analysts on a conference call Wednesday.

Revenue for what was Canopy's second quarter of its 2019 financial year totalled $23.3 million, up from $17.6 million a year ago but down sequentially from $25.9 million in the previous quarter.

The Smiths Falls, Ont.-based company reported a loss of $330.6 million in the quarter, amounting to $1.52 per share compared with a loss of $1.6 million or a penny per share a year ago. Analysts had expected a loss of 12 cents per share, according to Thomson Reuters Eikon.

The loss comes as the pot producer's operating expenses soared to $180.6 million during the quarter, nearly six times the $27.7 million it spent during the three months ended Sept. 30, 2017.

While the latest quarter did not encompass sales of recreational pot in Canada on and after legalization day on Oct. 17, Canadian cannabis producers had ramped up production and embarked on a marketing blitz in the lead up to the historic shift in drug policy.

Canopy spent $39 million on sales and marketing last month, up significantly from $7.6 million one year earlier. However, the company expects these expenses to lessen going forward amid tighter government regulations on pot promotion post-legalization.

Shares of the licensed producer on the Toronto Stock Exchange were closed down 11.30 per cent on Wednesday to $45.14. In New York, Canopy's shares closed down 10.86 per cent to $34.30.

Most stocks in the sector were down, with shares of competitor Tilray Inc. as much as 10 per cent lower to US$100 on the Nasdaq from its previous close of US$111.55. The Nanaimo, B.C.-based cannabis producer on Tuesday also posted a wider net loss of US$18.7 million during the quarter, compared with US$1.8 million a year earlier, and a surge in operating expenses ahead of legalization.

Analysts had likely anticipated provincial and territorial government entities tasked with the sales and distribution of recreational pot would have accepted a "material" amount of product in the latest quarter ahead of Oct. 17, said Linton.

"If you look across the entire sector, the provinces were not ready to take product," during the quarter, he said, echoing a similar statement made by Tilray's chief executive Brendan Kennedy to analysts on Tuesday.

The quarter included $700,000 in revenue from what Canopy said were test shipments to test supply chain systems ahead of the launch of recreational marijuana.

During the quarter, the company sold 2,197 kilograms and kilogram equivalents at an average sale price of $9.87 per gram, up from 2,020 kilograms and kilogram equivalents at an average price of $7.99 a year ago.

Canopy also said it had 84,400 active registered medical marijuana patients, up from 63,000 a year ago.

The roll out of recreational pot in Canada — only the second country in the world to do so, after Uruguay — has been riddled with widespread product shortages in many markets as demand outstripped supply. Several provinces have signalled that they are receiving less product than anticipated and expect these product shortages to linger for months.

Canopy said it remains "on track to meet all commitments on an annualized basis" and it is working with all its provincial and territorial partners to address supply shortages across the country.

The average number of kilograms in its daily shipments to the provinces and territories between Nov. 1 and 12 has "more than doubled" compared to between Oct. 17 and 31, the company added.

Canopy estimates that it has a 30 per cent share of all the recreational cannabis products on offer in stores cross the country, said Linton.

"You're going to see that as we go through the first six-months sprint, that the revenues come up."

Companies in this story: (TSX:WEED)

News from © The Canadian Press, 2018