Canopy Growth delays profitability target after $16.3M loss in Q2, facility closure

·3 min read

Canopy Growth Corp. pushed back its profitability target as it reported a $16.3 million loss and said it would close one of its greenhouses.

The Smiths Falls, Ont. cannabis company previously predicted it would be profitable in the second half of its 2022 financial year, but said Friday that reaching that goal will take longer than expected because of market share challenges and a slower-than-expected U.S. launch of its BioSteel products.

"Overall, we are not satisfied with where we are today," chief executive David Klein told analysts during a conference call to discuss its latest financial results.

While Klein promised the target will still be reachable, he characterized the delay as part of operating in an industry that's still finding its way.

"Make no mistake, like any new industry where potential is immense, progress is rarely seen in a straight line," he said.

While Canopy remains one of the biggest cannabis producers in Canada, many Canadians have yet to transition away from the illicit market and pot companies have struggled to align supply with demand since cannabis was legalized in 2018.

Since then, Canopy has laid off hundreds of workers and closed some facilities as it tries to restructure the company.

On Friday, it said it will shutter a 92,903-square foot, Niagara-on-the-Lake, Ont. greenhouse its Tweed brand operates and immediately lay off 30 workers.

The move could help reduce its recent losses and revenue troubles.

The company's loss of three cents per share in its most recent quarter was an improvement from the loss of $96.5 million or nine cents per share Canopy recorded during the same quarter last year. Analysts on average had expected a loss of 21 cents per share, according to financial markets data firm Refinitiv.

The company's revenue for the period ended Sept. 30 totalled $131.3 million, down from $135.2 million at the same period last year. Total net cannabis revenue reached $95 million in the quarter, a one per cent increase from a year earlier.

Excluding the impact from acquired businesses, Canopy said net revenue fell 13 per cent and cannabis revenue dropped 14 per cent.

Canopy executives believe revenue will pick up in the second half of its financial year, but warned that the magnitude and pace of improvement of its revenues is expected to be "more modest than previously anticipated."

Standing in the way of higher revenues is a competitive recreational cannabis market and shifting consumers preferences.

"Consumers are increasingly looking for higher THC offerings in the flower category and we did not shift our growth strategy fast enough to capitalize on this during the quarter," Klein said.

To correct this issue, he said Canopy will increase its supply of high-THC flower products and launch new pre-rolled joints, vapes, edibles and beverages.

The company will also try to woo shoppers during the December holidays by selling peppermint ribbons and fruit gummy packages under celebrity chef Martha Stewart's brand. The products will be infused with cannabidiol, a compound found in cannabis that doesn't produce a high but is believed to relax consumers, and have flavours like blood orange, kumquat and Persian lime.

As Canopy rejigs its offerings, it will also try to address some of the hiccups that have made it harder for consumers to get their hands on products.

For example, Klein said the distribution ramp up in its U.S. business is taking longer than expected. The company will also look to find more efficiencies stemming from its recent acquisitions.

Over the course of the COVID-19 pandemic, Canopy acquired Supreme Cannabis Co. Inc. and AV Cannabis Inc.

Its most recent purchase came in October, when it reached an agreement to buy Boulder, Colo.-based Wana Brands. The deal is contingent on the U.S. making tetrahydrocannabinol (THC), the main psychoactive component in cannabis, federally permissible.

This report by The Canadian Press was first published Nov. 5, 2021.

Companies in this story: (TSX:WEED)

Tara Deschamps, The Canadian Press

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