Canopy Growth Corporation Reports Declining Revenue

TORONTO — Canopy Growth Corporation, a leading player in the Canadian cannabis industry, announced steep losses exceeding C$3 billion in its recent financial report. Despite a 14% decline in revenue for the fourth quarter ending March 31, 2023, the company’s figures surpassed analysts’ expectations.

Canopy posted fourth-quarter revenue of C$87.54 million, down from last year’s C$101 million. However, this still outperformed the analyst average of $73.1 million. The company reported a net loss of C$648 million for the same period, primarily due to increased asset impairment and restructuring costs, partially offset by improved gross margins.

Over the full fiscal year, Canopy experienced a 21% decrease in revenue, falling from C$510 million in 2022 to C$402 million in 2023. This decline was attributed to heightened competition in the Canadian adult-use cannabis market, divestitures of certain businesses, and underperformance in specific segments. However, the BioSteel business in the Canadian market showed growth, partially offsetting the overall decline.

The net loss for the year totaled C$3.31 billion, a staggering 900% increase from the previous year. Depreciated assets and restructuring costs contributed to the loss, but improved gross margins provided some minor relief.

Amidst these challenges, Canopy Growth said they have initiated strategic changes to remedy the situation, including divesting its national cannabis retail operations and pausing flower cultivation at select facilities. The company anticipates that these restructuring efforts will result in a net cost reduction of C$125 million by the end of the fiscal year.

Canopy Growth’s medical cannabis revenue, however, showed a 6% year-over-year increase. The company has been focusing on right-sizing its Canadian operations and transitioning to an asset-light model. As part of these efforts, Canopy has exited cannabis flower cultivation at its Smiths Falls, Ontario facility and consolidated cultivation at facilities in Kincardine, Ontario, and Kelowna, British Columbia.

CEO David Klein expressed confidence in the company’s trajectory, stating quite boldly that: “Fiscal 2023 was a transformational year for Canopy Growth as we began to implement a comprehensive strategy to accelerate our path to profitability. Our actions are already yielding results, and we expect to realize significant benefits from our cost reduction program in Fiscal 2024.”

David flagged that Canopy Growth recently reached an agreement with Indiva Limited, granting the company control over the distribution, marketing, and sales of Wana branded products in Canada. The management feel this agreement is expected to improve Canopy’s adjusted EBITDA in the edibles category.

The company’s cash and short-term investments decreased to C$783 million by the end of March, primarily due to operating expenses, loan repayments, and acquisitions. However, Canopy Growth raised $135 million in net proceeds from the issuance of $100 million in convertible debentures in February 2023.

Canopy’s debt decreased from $1.50 billion in 2022 to $1.31 billion as of March 31, 2023. The company also repaid $127 million of debt and settled $100 million of 2023 notes, further improving its financial position.

An internal review of Canopy Growth’s BioSteel Sports Nutrition business uncovered material misstatements in prior financial statements, resulting in an approximate C$10 million drop in net revenue for the year.

The company is exploring legal options regarding an associated overpayment made in 2023. Management changes and remedial measures have been implemented to address these accounting errors and minimize operating cash burn.

Looking ahead, Canopy Growth aims to achieve breakeven to positive adjusted EBITDA in all businesses, except BioSteel, by the end of 2024. The company says it plans to strengthen its balance sheet and improve liquidity through facility divestitures, which are expected to generate up to C$150 million by the end of September 2023.

Despite the challenges faced during the past year, Canopy Growth remains optimistic somehow.  Despite a very poor performance and no path to profitability to be seen, CEO David Klein expressed confidence in the company’s potential, stating, “The company is well-positioned as it strives towards its goal of long-term North American cannabis leadership.”

Longer term, Highly Capitalized readers be warned, this company has made promises before that have not materialized. There may never be a profitable plan for CGC, all that remains is what the ownership will do with the company.