Adam Jackson
Despite shaving losses via several cost-cutting strategies, Canada’s Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) again expressed continued concerns over its future financial stability. The company disclosed ongoing “substantial doubt” in its ability to continue as a going concern in its results for the first quarter ended June 30.
Despite the concern, the company showed some signs of improvement in its latest financials. Canopy Growth reported an adjusted EBITDA loss of C$57.8 million, reflecting a notable improvement from a C$79 million loss reported in the same period a year earlier.
The narrowing loss can be attributed to the company’s aggressive cost-cutting strategies. However, the persistent doubt from the company suggests that the road to profitability and long-term sustainability might still be uncertain.
Canopy Growth’s efforts to achieve profitability saw them exit certain international markets, shut down a number of stores, and divest from their retail segment across Canada. The measures were introduced in hopes of mitigating losses and ensuring a sustainable operational model.
The company reported a 2.7% increase in net revenue for the period, amounting to C$108.7 million. Factoring in the divestiture of its Canadian cannabis retail operations from full-year 2023, the company’s revenue saw a 16% rise year-over-year.
Other takeaways from Canopy Growth’s first-quarter financials include:
- A sequential revenue rise in all business segments from the fourth quarter of 2023
- Cost savings of $172 million since the start of full-year 2023, with $47 million in this quarter alone
- Closure of eight cultivation sites
- Consideration of selling BioSteel Sports Nutrition to alleviate financial burdens
CEO David Klein said in a statement that the firm’s performance reflects the measures taken over the past year, with the business showing “stability, consistency, and signs of positive momentum.”
The company’s gross margin improved to 5%, a decent upturn from -5% during the same period in 2023. The increase was attributed to cost savings in the Canadian cannabis segment and improved operations in the Storz & Bickel division.
On the expenditure front, SG&A expenses dropped by 12% versus the same period last year, primarily due to restructuring efforts initiated between full-year 2022 and full-year 2023.
Canopy Growth posted a net loss of C$42 million in the quarter, a fraction of the much larger loss of C$2.1 billion reported last year. The fall stems from lower restructuring costs and non-cash fair value adjustments on financial assets.
Judy Hong, chief financial officer, signaled optimism regarding the company’s trajectory, pointing to efforts to achieve positive adjusted EBITDA across most business divisions by the end of the current fiscal year. She also highlighted the firm’s commitment to reducing expenses, selling non-core assets, and minimizing debt.
In other significant developments:
- The Tweed brand has garnered 3.1% of Canada’s adult-use cannabis flower market share in Q1 FY2024, marking a growth of 202 basis points year-over-year.
- Revenue from Canadian medical cannabis surged by 7% year-over-year, thanks to larger medical orders and a diverse product range.
- Partnership agreements for distributing Wana-branded cannabis edible products in Canada were inked in Q1 FY2024.
- BioSteel observed a 137% surge in net revenues, and Storz & Bickel is gearing up for the launch of a new vaporizer line in fall 2023.
Regarding its liquidity, Canopy Growth ending the period with $571 million in cash and short-term investments. The company’s total debt at the quarter’s end was $1.04 billion, marking a $262 million reduction sequentially.
