Canopy Growth records a net loss of $2 billion

Canopy Growth Corp executives argued that the company was moving toward profitability, even as they recorded a $1.72 billion non-cash loss, contributing to a net loss of more than $2. billion USD in the most recent quarter.

“Maybe our aspirations have changed over the last few years, but we believe we can put ourselves, with the right focus on the right categories,” said CEO David Klein. to a profitable business without burning cash in the Canadian market.” a call with analysts.

“I don’t want anyone to think that we don’t spend nearly all our waking hours … stopping money burning in Canada.”

His remarks came when Smiths Falls, Ont. The company behind the Tweed, Tokyo Smoke and Doja brands said on Friday that it had a first-quarter net loss compared with net income of more than $389 million at the same time last year.

The loss charge for the period ending June 30 is related to Canopy’s businesses and comes as its business-to-business recreational cannabis sales are down 38% since last year due to compressed prices and increased competition.

“The Canadian market has actually developed very differently from our initial expectations,” Judy Hong, chief financial officer, admitted on a call with analysts.

She cites market fragmentation, irrational market power and regulatory hurdles, including delays in federal legalization in the US, as the company’s biggest challenges.

Such conditions have prompted Canopy to refocus its product mix into the premium sector, which typically demands higher prices and creates a more loyal consumer base than value items.

The premium move is coupled with an ongoing cost-cutting plan that includes retooling facilities, reviewing procurement strategies, implementing flexible manufacturing processes, and reducing office fees. room and third-party expertise.

As part of the plan, 243 Canopy workers in Canada, Europe and the US lost their jobs in April, the latest in a string of layoffs that Canopy and its rivals have made during the pandemic COVID-19.

Canopy predicts its move will generate savings of $100 to $150 million within 12 to 18 months and – like a host of other cannabis companies that have embarked on a recent overhaul – help it achieve profits by better aligning supply with demand .

But many barriers stand in the way of this goal.

In the most recent quarter, Canopy’s largest US distributor faced financial challenges that forced it to halt orders and the company is currently working to re-establish ordering patterns. The item was lost, Hong said.

Consumer spending power is also easing as Canada faces nearly 40-year high inflation reflected by several other countries. Rising inflation has moderated sales of high-end vaporizers in Europe and North America, Hong said.

Supply chain challenges from previous quarters have also occurred and are an issue for the Storz and Bickel vape brands in particular.

“Our procurement, engineering and manufacturing teams are working to identify solutions to these challenges, including alternative components and suppliers, and we hope this is manageable.” “, said Hong.

While Canopy works to address these issues, Klein added that they are still keeping an eye on the US

In recent weeks, Senate Majority Leader Chuck Schumer has introduced the Cannabis Licensing and Opportunity Act, which could help federally legalize marijuana, though observers don’t expect it to be. promulgate.

“There’s no doubt we’re focused on the US market, which is growing… slower than we would have liked,” Klein said.

He noted that two-thirds of Americans already live in a location that has the right to use marijuana in some format, “but the federal government still refuses to recognize that fact.”

“So putting that aside… we’re not waiting,” he said. “We continue to see the US as the largest and most important market in the world.”

To advance its strategy in the United States, Canopy has signed an agreement to acquire snack company Wana Brands, should the Canadian neighbor move to allow a key pot ingredient.

Canopy has made similar arrangements with TerrAscend Corp. and Acreage Holdings Inc. and strengthen its U.S. presence by launching four cannabidiol sparkling waters under the Quatreau name across the border in March 2021, adding to the portfolio of products by Martha Stewart, BioSteel and This Works. Sold in the US

The company’s first-quarter net loss amounted to a loss of $5.23 per diluted share compared with a loss of 84 cents per share in the second quarter of 2021.

Analysts expect the company to post a net loss of $111.6 million, or 28 cents per share, according to financial data firm Refinitiv.

Net sales for the period came in at $110.1 million, down 19% from $136.2 million in the same quarter last year.

Following the release of those figures, Canopy’s share price fell about 40 cents, or 11%, to $3.29 when the stock market opened. By mid-morning, it was trading at $3.42.

This Canadian Press report was first published on August 5, 2022.

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