Adam Jackson
Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) reported some improvement in its financials for the second quarter of the fiscal year 2024, hinting at a shift toward hope for the struggling operator.
The company posted a net revenue of C$70 million with a gross margin of 34% for the quarter ended Sept. 30. The figure marks a considerable rise from the negative margin reported in the same period last year, thanks in part to its cost cuts and restructuring plans.
The Smiths Falls, Ontario-based cannabis producer detailed a series of cost-saving measures that led to a C$54 million expense reduction in the second quarter, totaling $226 million in savings since the onset of the fiscal year. The measures are part of a larger strategy to achieve a targeted reduction between C$270 million to C$300 million by the end of fiscal 2024.
“Canopy Growth has successfully transformed into an asset-light, cannabis-focused company with a stronger balance sheet,” CEO David Klein said in a statement. “These actions have resulted in a company that looks and operates fundamentally different than before, a Canopy Growth that is purpose-built for the markets and geographies of greatest opportunity.”
The company’s Canadian cannabis operations showed a consistent rise in revenue, with this last quarter marking its third successive one of growth. That has been coupled with a move to divest some assets, including its Hershey Drive facility, which contributed to the company’s substantial debt reduction of about $1 billion since last year, Canopy said.
The company’s chief financial officer, Judy Hong, pointed to the firm’s discipline.
“Our financial results demonstrated marked improvement this quarter, including significant gross margin gains and reduced cash burn,” Hone said. “This enhanced performance, together with a series of completed balance sheet strengthening actions, has solidified our foundation and set the stage for profitable growth ahead.”
In terms of product development, Canopy said it has continued to beef up its portfolio, resulting in increased market share. The company’s medical cannabis segment also reported its fourth consecutive quarter of revenue growth.
Internationally, Canopy is advancing its footprint, responding to market opportunities with new product launches and increased attention to high-growth markets such as Australia. The EU-GMP certification of its Kincardine, Ontario, facility underscores the firm’s drive to serve global medical cannabis demand.
The company’s U.S. operations have also seen positive movements, with the introduction of new product SKUs and preparations for expanding market reach in the next year.
However, Canopy said it still faces regulatory hurdles regarding its plans to potentially create a new ring-fenced entity that would incorporate both its Canadian and U.S. investments. The idea inspired others to try the same route.
The company said it is actively negotiating and is engaged in discussions with the U.S. Securities and Exchange Commission to address their concerns, such as exploring additional structural amendments to facilitate the financial deconsolidation of Canopy USA from Canopy Growth’s results.
The company’s stock was trading lately at around $.52 cents.
