UPDATE 3-Pot producer Canopy Growth reels under slow retail store openings

Shanti S Nair

(Adds details from conference call)

Nov 14 (Reuters) - Canopy Growth Corp said on Thursday it may miss targets for fourth quarter revenue as regulations slow retail store openings in Canada, sending its shares down 16% and adding to signs of weakness in the legal cannabis market.

Contrary to the expectation that the sector would flourish after legalization of recreational weed in the country, it has run into a slew of troubles that are dampening demand for the product.

A slow roll out of retail stores, the prevalence of illicit markets and burgeoning supply from producers racing to assert dominance are causing steep declines in prices with unsold pot stacking up in company inventories.

Canopy Chief Financial Officer Mike Lee said on a post earnings call with analysts that "the Canadian market was 6 to 12 months behind where they thought it would be" due to the slow roll-out of stores.

"We do not believe at this time that there will be sufficient points of retail sales in the near-term to unlock the necessary Q4 demand," Chief Executive Officer Mark Zekulin said.

Inventory buildup resulted in a C$15.9 million charge in the second quarter for Canopy, which harvested 40,570 kilograms of weed, but sold only 10,913 kilograms and kilogram equivalents of cannabis products.

Canopy also took a charge of C$32.7 million ($24.71 million) as it restructured its portfolio to account for returns, return provisions and price cuts for its softgel and oil products.

Shares of the company, which posted a wider-than-expected quarterly loss, fell as much as 16%, while its U.S.-listed shares touched a record low of $15.50.

Rival pot producers Tilray and Cronos earlier this week reported selling prices nearly halved in the September quarter due to surplus supply.

Canopy said it will stop making any significant expansion investment in Canada, having spent heavily to build its portfolio of edible, vapes and other derivative products that were legalized in the country in October.

The capital spending would be "muted" in the next 12 to 18 months as Canopy looks to boost its free cash flow.

It had expected to deliver C$250 million in the fourth quarter, compared with analysts expectation of C$183.94 million, according to Refinitiv IBES data.

Adjusted core loss of C$155.75 million was wider than analysts' expectations of C$92.9 million, as operating expenses surged 48.2%.

Net revenue rose more than three fold to C$76.6 million.

($1 = 1.3231 Canadian dollars)

(Reporting by Shanti S Nair and Shariq Khan in Bengaluru; Editing by Shinjini Ganguli)