Facing consistent challenges on the path to profitability, cannabis corporation Canopy Growth has announced a host of cost reduction measures on Tuesday — including slashing around 250 jobs — as it targets hundreds of millions in savings by the end of the fiscal year 2022.
What is the company doing?
In a press release on Tuesday afternoon, Canopy, whose majority stakeholder is beer and spirits giant Constellation Brands, announced “a series of initiatives to reduce costs and drive efficiency in order to accelerate its path to profitability.” These include:
- Boosting cultivation-related efficiencies and improving flower growing facilities to bring down its per-gram costs, generating CA$30 – $50 million in cost of goods (COGS) savings within 12 – 18 months
- Implementing a “flexible” production model that will employ co-packers for manufacturing certain product formats
- Generating efficiencies and “rightsizing indirect costs” related to supply chain and procurement
- Reduce sales, general and administrative (SG&A) expenses by CA$70 million – $100 million within 12-18 months
“As a result of these challenging but necessary changes to the organizational structure, dedicated team members will be impacted as the company operates with a reduced headcount moving forward,” the release stated. “The Canopy Management team wishes to acknowledge the efforts of these individuals during their tenure and thanks them for their contributions to the Company.”
“To realize profitability and power growth, we are taking critical actions to further evolve Canopy Growth into an agile organization with a clear focus on the areas where we have the greatest potential of success,” said David Klein, Canopy Growth CEO. “These necessary changes are being implemented to ensure the size and scale of our operations reflect current market realities and will support the long-term sustainability of our company.”
“The savings and operational efficiencies generated through these additional steps reinforce our commitment to driving Canopy to profitability,” added CFO Judy Hong. “Achieving profitability in our Canadian business is critical to the success of our Company and will ensure we can continue investing in our key strategic growth areas including U.S. THC to build significant long-term value.”
Taken in addition to the previously announced and achieved savings of CA$150-$200 million, Canopy management anticipates between CA$250 – $300 million in mainly non-cash impairment charges in Q4 FY2022, the majority of which relate to the write-down of excess inventory balances as well as “property, plant and equipment” impairments.
Further, the company expects to incur between CA$100 – $250 million in non-cash impairment charges in Q4 FY2022, largely driven by goodwill and intangible asset impairments.
According to MJBizDaily, the layoffs mean that approximately 1,600 Canopy employees have lost or left their jobs since 2020.
What does this mean?
Despite its ambition to lead the commercial cannabis revolution, Canopy Growth is still mired in trouble simply generating enough cash. In looking internally for ways to cut costs, the company is acknowledging that sliding sales in Canada have compounded its existing challenges in getting to profitability, with no clear end in sight.
Canopy reported a net loss of CA$115 million in its most recent quarterly earnings report, with revenue down 8% year-over-year. Sales of beverages, edibles, topicals and vapes were collectively down around 40%, generating just CA$5.8 million.
However, the press release makes no mention of cutting Canopy’s M&A budget, particularly as it relates to preparing to enter the U.S. adult-use market once lawmakers take action. In October, the company spent $297.5 million to acquire Colorado-based cannabis edibles maker Wana Wellness, contingent upon federal legalization of THC. Canopy has also put a stake in the U.S. CBD beverage space with partners like Karma and its own brand, Quatreau, which is distributed nationally via Southern Glazer’s Wine & Spirits.
The latest legislative effort to federally legalize cannabis, The Marijuana Opportunity Reinvestment and Expungement Act (MORE), passed in the U.S. House of Representatives earlier this month. However, it is not expected to pass the Senate.