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Tuesday, May 30, 2023
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.


Canopy pushes out fiscal 2022 profit predictions, closes Niagara facility

Q2 revenue dipped 6% to $146M

Canopy pushes out fiscal 2022 profit predictions, closes Niagara facility
30 employees will be affected 'immediately' by the change. Image via Canopy

Weed giant Canopy Growth Corp. (TSX: WEED) (Nasdaq: GCG) is walking back on promises for positive adjusted EBITDA this year, despite doubling down on those predictions just months ago.

In its earnings report Friday, the company said the target is being pushed out due to supply challenges in Canada, and a delayed ramp up of revenues in the U.S. related to its BioSteel sports drink brand.

Also on Friday, Canopy said it’s shuttering its one-million-square-foot Niagara-on-the-Lake facility, citing operational advantages of the Kincardine, Ont., facility it acquired after buying Supreme Cannabis for $435 million earlier this year.

In the second quarter ended Sept. 30, reported revenue fell 6 per cent to $146 million, from $155 million in the previous quarter.

The company booked an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $163 million, up 155 per cent from a loss of $64 million.

That’s after CEO David Klein saying in June that his firm was committed to positive adjusted EBITDA by the end of the fiscal year. At the time, he expressed optimism for U.S. senators passing cannabis reform.

Read more: Canopy confident on profit prediction despite flat Q4 growth

But Canopy has now changed its outlook.

“In new industries where the potential is immense, progress is rarely a straight line,” Klein said in a statement.

Gross margin was negative 54 per cent in the quarter, falling from 14 per cent.

The company attributed the decrease to inventory write-downs of $87 million primarily due to excess cannabis inventory. It said sales were lower than forecasted. Gross margin was further impacted by lower production output and price compression, as well as higher third-party shipping, distribution and warehousing costs.

Net earnings came in at a loss of $16 million, compared to a $390-million boost in the second quarter which was primarily driven by non-cash fair value changes of $601 million.

Canopy says it expects revenue to accelerate in the near-term, but less than anticipated. Despite signing huge endorsement deals with major basketball teams, expanding distribution of its BioSteel business in the states has been sluggish.

The firm says it’s focused on “stabilizing” its market share in Canada’s recreational market in the second half of the fiscal year.

It reported cash and short-term investments of $2 billion as of Sept. 30.

Company stock fell nearly 12 per cent Friday to $14.60 on the Toronto Stock Exchange.

30 employees laid off as Niagara facility closes

After an initial report from BNN Bloomberg, Canopy has confirmed it’s shuttering its massive Niagara-on-the-Lake production site.

After analysis, it’s clear that with the addition of the “industry-leading” Kincardine facility, Canopy’s remaining sites in Smith Falls and Mirabel have sufficient capacity to output enough high-quality product to its consumers, a spokesperson tells Mugglehead by email.

The move is “fully aligned” with the firm’s updated cultivation strategy, which is focused on high-THC and premium flower at low cost in scalable facilities.

Canopy pushes out fiscal 2022 profit predictions, closes Niagara facility - supreme 7acres jean guy

In April, Canopy announced a deal to buy Supreme Cannabis, a producer behind premium brand 7Acres

“This site optimization supports both our path to profitability and the realization of efficiencies from the acquisition of Supreme. Recognizing the valuable skills of our team members at the Niagara production site, we are pleased to be offering roles for the majority to transfer their employment to an alternate Canopy facility.”

Read more: Canopy buying Supreme Cannabis for $435M in premium brand grab

Read more: Canopy shutters 5 Canadian facilities, beverage boss walks

Around 30 employees were “immediately” impacted by the decision, the spokesperson said.

Canopy laid off over 1,200 employees last year, after it ceased operations at a number of facilities in Canada and internationally.


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