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Canopy Growth (NASDAQ:CGC) reported a decline in FQ3 revenue and announced restructuring activities, including reducing its workforce across the business by ~60%.
Restructuring:
Canopy said it is transitioning to an asset-light model in Canada by exiting cannabis flower cultivation in its Smiths Falls, Ontario facility, ceasing the sourcing of cannabis flower from the Mirabel, Quebec facility, and moving to a third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.
The changes come in addition to cost reduction activities within FY2023, including the divestiture of Canopy’s Canadian retail operations, the organizational restructuring of certain corporate functions, and the closure of the Scarborough, Ontario research facility.
As a result of the cost reduction activities undertaken in fiscal 2023, the company plans to close its 1 Hershey Drive facility in Smiths Falls, Ontario, in addition to reducing headcount across the business by ~60%, including 800 positions impacted by the changes announced Thursday, of which 40% are impacted immediately, the company noted.
“We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth,” said CEO David Klein.
Canopy expects these cost cutting initiatives will reduce annual Cost of Goods Sold (COGS) and Selling, General & Administrative (SG&A) expenses by a total $140M to $160M over the next 1 year, bringing the total cost reduction target to $240M to $310M inclusive of the reductions announced in April 2022.
FQ3 results:
Net revenue declined -28.2% Y/Y to C$101.2M, mainly due to increased competition in the Canadian adult-use cannabis market, the divestiture of C3 Cannabinoid Compound Company GmbH (C³), a decline in its U.S. CBD business, and softer performance from Storz & Bickel and This Works.
Net loss widened to -C$267.10M, compared to -C$115.68M in FQ3 2022, driven primarily by non–cash fair value changes and an increase in asset impairment and restructuring costs.
Adjusted EBITDA loss in Q3 FY2023 was -C$$87.5M, compared to -C$67.41M in FQ3 2022.
Cash and short-term investments were C$789M at Dec. 31, 2022, declining by C$583M, from ~$1.37B at March 31, 2022 due to cash used in operating activities, loan repayment, and for acquisitions and investments.
Total SG&A expenses in Q3 FY2023 increased by 5% Y/Y.
Entry in U.S. market:
Canopy said that due to Nasdaq’s objections to the consolidation of CUSA into the financials of Canopy, it is prepared to make changes to the structure of its interest in Canopy USA, LLC (CUSA) such that Canopy would not be required to consolidate the financial results of CUSA into Canopy’s financial statements.
This may include: (1) reducing Canopy’s economic interest in CUSA on an as-converted basis to no greater than 90%, (2) reducing the number of managers on CUSA’s board of managers to 3 from 4, including, reducing Canopy’s nomination right to a single manager, (3) modifying the terms of the Protection Agreement entered into with CUSA and CUSA’s Limited Liability Company Agreement to eliminate certain negative covenants and (4) modifying the terms of the agreements with third-party investors in CUSA to, among other things, remove their right to guaranteed returns.
Canopy noted that it is committed to remaining dual–listed on the TSX and the Nasdaq.
CGC -0.73% to $2.72 premarket Feb. 9