Canopy Growth (TSX: WEED) is exploring strategic options for its BioSteel Sports Nutrition subsidiary in an effort to reduce its cash burden.
The review is said to contain the potential for a sale of the business, less than four years after it initially acquired a 72% stake in the sports nutrition company for $50.7 million.
The subsidiary in the most recent quarter reported revenue of $32.5 million, with the figure representing growth of 137% from the year ago period. The division is second only to Canopy’s Canadian cannabis segment, which reported revenue of $38.6 million for the quarter.
The increase in revenue is said to be attributed to the firms expanded distribution within the grocery, convenience, and gas station channel, as well as into the large-format club channel. BioSteel’s brand sponsorship with the NHL is also said to be a factor in the growth.
Despite the revenue growth however, the cash costs of the operation appear to be hefty. Canopy has indicated that it expects to achieve positive Adjusted EBITDA in all business units by the end of fiscal year 2024, except for the BioSteel segment.
The segment was also blamed for poor margins, with the company noting a 13-percentage point increase in overall gross margins when the segment is excluded from reported figures, due to aging inventory write downs, high warehousing costs, and high production costs. BioSteel as a whole saw negative margins of 24%, with gross margins coming in at negative $7.8 million.
Canopy is said to be reviewing and considering options for monetization of all of its non-cannabis and non-core assets, including BioSteel.
Canopy Growth last traded at $0.61 on the TSX.
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As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.