Less than a year after Canopy Growth (TSX: WEED) announced that it was “undertaking initiatives to reduce costs and drive efficiency,” as it sought to obtain profitability, the company has now revealed it is undergoing a “Canadian business transformation plan.”
The “new” plan follows the company’s divesture of its retail operations in Canada, an effort which began back in September.
READ: Canopy Growth To Sell Canadian Retail Ops
Essentially, after dumping its retail operations, the once-leader of the Canadian cannabis sector is now transitioning to an “asset-light model” which will see it reduce costs by $140 to $160 million. The model will result in the company exiting cannabis flower cultivation at its flagship Smith Falls, Ontario facility, while it will stop sourcing flower from its Mirabel, Quebec facility.
A third party model for cannabis used in beverages, edibles, vapes, and extracts meanwhile is to be implemented, as a means of reducing costs further.
In-market brands and SKU count changes are expected to be implemented at the same time, resulting in cuts of 25-50%.
The changes will result in the 1 Hershey Drive facility being closed, and job losses for roughly 60% of the corporation. 800 positions are said to be impacted by the changes announced just today, with 40% or roughly 320 jobs to be “impacted immediately.” The job losses and closures are slated to cut SG&A costs as well as cost of goods sold by $140 to $160 million over the next twelve months.
Combined with the cost cutting measures announced in April 2022, the company expects to reduce expenditures by $240 to $310 million. The changes are expected to result in positive adjusted EBITDA in fiscal year 2024. Pre-tax charges of $425 to $525 million are expected to occur in the first half of fiscal 2024 due to the changes, much of which will be incurred in the current quarter.
Q3 earnings flop
At the same time, Canopy this morning reported third quarter results, highlights by net revenue of $101.2 million, a decline of 28% on a year over year basis, and a 14% decline on a sequential basis. Gross margins meanwhile came in at negative 2%, versus positive 3% last quarter, and net losses increased from $231.9 million to $266.7 million.
Adjusted EBITDA also failed to improve, falling from negative $78.1 million in the second quarter to negative $87.5 million in the third quarter.
READ: Canopy Growth Sees Gross Margins Improve To 3%, Net Losses Continue In Q2 2023
The poor results are being blamed on increased competition in the Canadian adult-use market, the divesture of C3, a decline in its CBD operations in the US, and weak performance from Storz & Bickel as well as This Works. In short, everything appears to be falling apart for the company.
Canopy Growth last traded at $3.67 on the TSX.
Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
