Analysis: Canadian LP Canopy Growth Sheds Canadian Assets & Plans Further Layoffs
TORONTO-–Canopy Growth Corporation, a leading Canadian cannabis producer, announced on Thursday its plans to shed assets and reduce its workforce by 800 employees. The company aims to reduce costs and improve its financial performance. In response to the announcement, shares of the company plummeted by 16.6% to C$3.06 at the close of trading.
To achieve its cost-cutting goals, Canopy Growth has implemented various measures such as layoffs, exit from certain international markets, store closures, and the divestiture of its retail operations across Canada. The company projects that it will save between C$140 million and C$160 million over the next 12 months as a result of these efforts.
In Canada, the company will exit cannabis flower cultivation at its Smiths Falls, Ontario facility and stop sourcing flower from its Quebec facility. It will also move to a third-party sourcing model for its cannabis-based products, including beverages, edibles, vapes, and extracts. The company expects these operational changes to be completed in the second quarter of fiscal 2024 and anticipates that it will incur restructuring-related pretax charges of C$425 million to C$525 million in the current quarter and the first half of fiscal 2024.
“Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership. We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth.”
David Klein, Chief Executive Officer (main picture)
Canopy Growth’s current workforce is 2,250 employees, and it plans to retain 1,450 of these employees after the reductions announced on Thursday. According to Stifel analyst Andrew Carter, the company’s success will depend largely on investor enthusiasm in an environment where public sentiment towards cannabis is at best neutral.
The company’s financial performance has been underwhelming. In the quarter ending December 31st, Canopy Growth’s adjusted core loss increased to C$87.5 million, compared to C$67.4 million in the same quarter the previous year. Meanwhile, its smaller rival, Aurora Cannabis Inc, reported an adjusted core profit of C$1.4 million, compared to a loss of C$7.1 million in the previous year, driven by higher revenue and reduced expenses.
(This information is primarily sourced from Canopy Growth Corporation. Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).
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