Canopy Growth makes a loss of 2 billion

(Toronto) Canopy Growth executives say the company is moving toward profitability despite posting a $1.72 billion non-cash writedown that forced it to post a net loss of more than $2 billion US dollars to book.

Updated yesterday at 5:28pm.

Tara Deschamps
The Canadian Press

“Our ambitions may have changed in recent years, but we believe that by focusing on the right categories, we can drive a profitable business that doesn’t exhaust its funds in the Canadian market,” Chief Executive David Klein said on a conference call with analysts on Friday.

“I don’t want anyone to think that we’re not spending most of our waking hours […] Attempt to stop cash burning in Canada. »

His comments came as the Smiths Falls, Ontario-based cannabis producer posted its first-quarter loss, which compares to net income of more than $389 million for the same period last year.

The impairment for the quarter ended June 30 related to Canopy’s cannabis business and arose when business-to-business sales of recreational cannabis declined 38% year over year due to pricing pressures and competition.

“The Canadian market has really performed very differently than we originally anticipated,” CFO Judy Hong admitted on the conference call.

She cited market fragmentation, the strength of the illicit market, and regulatory hurdles, including the slow pace of federal legalization in the United States, as the top challenges the company faces.

Those conditions prompted Canopy to focus its product line on the high-end segment, which typically commands higher prices and generates a more loyal customer base than other items.

The move to the high-end has been accompanied by an ongoing cost-cutting plan that includes revamping its facilities, revamping its sourcing strategies, implementing flexible manufacturing processes, and reducing third-party professional and office costs.

As part of the plan, 243 Canopy workers in Canada, Europe and the United States lost their jobs in April. The deal was part of a series of layoffs Canopy and its peers have made during the COVID-19 pandemic.

Canopy expects its actions to result in savings of between $100 million and $150 million over 12 to 18 months and help it achieve profitability by better matching supply and demand.

But many obstacles threaten to derail this goal.

Last quarter, Canopy’s largest U.S. distributor experienced financial difficulties that caused orders to be suspended, and the company must now work to recover lost order samples, Mme Hong Kong.

Consumer spending power is also falling as Canada faces its highest inflation in nearly 40 years, a phenomenon shared by many other countries. Rising inflation has already dampened sales of high-end vaporizers in Europe and North America, Frau said.me Hong Kong.

Supply chain challenges from previous quarters also lingered and were a concern, particularly for vaporizer brand Storz and Bickel.

“Our sourcing, engineering and manufacturing team is working hard to find solutions to these challenges, including using alternative components and suppliers, and we anticipate that this will be feasible,” noted M.me Hong Kong.

The American market still in the crosshairs

As Canopy works to address these issues, Klein noted that it’s still keeping an eye on the United States.

In recent weeks, Senate Majority Leader Chuck Schumer has introduced legislation that could help legalize marijuana at the federal level, though observers don’t expect it to become law.

“We undoubtedly have a strong focus on the developing US market […] slower than we would like,” admitted Klein.

He noted that two-thirds of Americans already live in a place that offers access to cannabis in one form or another, “yet the federal government still refuses to acknowledge that reality.”

“Well, regardless of that […] we won’t wait, he said. We continue to see the United States as the largest and most important market in the world. »

To advance its U.S. strategy, Canopy has signed an agreement to acquire edibles company Wana Brands in order to be ready should the U.S. decide to move forward.

Canopy previously completed similar deals with TerrAscend and Acreage Holdings and strengthened its presence in the United States with the launch of four cannabidiol sparkling waters under the Quatreau brand south of the border in March 2021, which were added to the list: Martha Stewart, BioSteel and This Works products it already sells in the United States.

The company’s net loss was $5.23 per share compared to a loss of 84 cents per share in the second quarter of 2021.

Analysts had expected the company to report a net loss of $111.6 million, or 28 cents a share, according to forecasts by financial data firm Refinitiv.

Net revenue for the quarter was $110.1 million, down 19% from $136.2 million in the same quarter last year.

Canopy’s share price fell 19 cents, or 5.2%, to $3.50 on the Toronto Stock Exchange.

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