Adam Jackson
Canada-based cannabis industry leader Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) has reported steep rising losses worth more than C$3 billion.
Canopy posted revenue of C$87.54 million for the fourth quarter ending March 31, 2023 versus last year’s $101 million — a decline of 14%. Still, the revenue figure beat Yahoo Finance’s analyst average of $73.1 million for the year.
The net loss in the fourth quarter was an eye-popping C$648 million, which is a C$59 million increase as compared to 2022’s fourth quarter. Canopy said it was primarily driven by an increase in asset impairment and restructuring costs of C$164 million partially offset by improved gross margins.
Full Year Results
For the full fiscal year, Canopy reported that its revenue fell by 21% from 2022’s C$510 million to 2023’s revenue of C$402 million. The decrease was attributed to increased competition in the Canadian adult-use cannabis market, the divestitures of C³ and the Canadian business-to-consumer cannabis business, and softer performance from Storz & Bickel and This Works. These decreases were partially offset by growth in the BioSteel business in the Canadian market.
The net loss totaled C$3.31 billion, a 900% rise of C$2.98 billion from the previous year, driven by depreciated assets and restructuring costs but offset by improved gross margins, the company added.
The fall in revenue comes as the company undergoes strategic changes, including the divestiture of its national cannabis retail operations and pauses in production of flower cultivation at some facilities.
Restructuring
Canopy Growth still expects the overhaul to yield a net cost reduction of C$125 million by the end of the fiscal year. And the company’s medical cannabis revenue rose 6% year-over-year.
The company said that is has been rightsizing its Canadian operations to pivot towards an asset-light model. Some restructuring steps include exiting cannabis flower cultivation in its Smiths Falls, Ontario facility and consolidating cultivation at its facilities in Kincardine, Ontario, and Kelowna, British Columbia.
“Fiscal 2023 was a transformational year for Canopy Growth as we began to implement a comprehensive strategy to accelerate our path to profitability,” said CEO David Klein said in a statement. “Our actions are already yielding results and we expect to realize significant benefits from our cost reduction program in Fiscal 2024.”
Also noteworthy is the company’s recent agreement with Indiva Limited, which it says will allow Canopy Growth to control the distribution, marketing, and sales of Wana branded products in Canada. The step is expected to improve the company’s adjusted EBITDA in the edibles category, it said.
Cash Burn
The company’s cash and short-term investments declined to C$783 million at the end of March, a decrease of C$589 million from C$1.37 billion in the same period in 2022, according to filings.
The decline in cash was primarily due to operating expenses, a C$118 million repayment of the first portion of the term loan credit agreement, and funds used for acquisitions and investments. Notable expenditures included the purchase of a manufacturing facility in Verona, Virginia for the BioSteel business and a premium payment to secure an option to buy outstanding debt from Acreage Holdings Inc. as part of the formation of CUSA in October 2022.
These outflows were partially offset by net proceeds of $135 million from the issue of $100 million in convertible debentures in February 2023.
As of March 31, 2023, the company’s debt stood at $1.31 billion, a reduction of $194 million from $1.50 billion on the same date in 2022. Following March 31, the company repaid $127 million of debt under the credit facility at $0.93 cents on the dollar for $117 million, and settled $100 million of the 2023 notes through a promissory note due at the end of the third quarter of 2025.
Accounting Errors
The company said that an internal review of the BioSteel Sports Nutrition business revealed material misstatements in the company’s prior financial statements, leading to an approximate drop of C$10 million in net revenue for the year. The company is exploring legal options regarding an associated overpayment made in 2023.
The review apparently led to management changes and “appropriate personnel actions,” along with several remedial steps, including a focus on the Canadian market and cost reductions in production and staffing to “further minimize operating cash burn,” the company said.
Looking Ahead
Canopy Growth aims to achieve breakeven to positive adjusted EBITDA in all businesses, except BioSteel, by the end of 2024. The company has also outlined plans to strengthen its balance sheet and improve liquidity, with facility divestitures expected to generate up to C$150 million by the end of September 2023.
Despite the year’s challenges, management signaled optimism. “The company is well-positioned as it strives towards its goal of long-term North American cannabis leadership,” Klein said.
