The turn of Canopy Growth Corp. into high-end cannabis helped the company report a lower quarterly loss than a year ago, but that wasn’t enough to prevent a 25% drop in revenue.
Smiths Falls, Ont. The cannabis company behind brands like Tweed, Doja and Ace Valley said Friday that Canopy’s fourth-quarter net revenue was $111.8 million, down from $148.4 million in the same quarter a year. last.
On a year-over-year basis, the company’s global cannabis net revenue fell 35% to $66 million in the quarter. This included a 36% drop to $39 million in Canadian recreational cannabis and a 33% drop to $27 million in medical cannabis and other products like edibles sold in Canada.
Revenue from other consumer products, including Storz & Bickel (vapes), This Works (skincare), BioSteel (sports drinks and protein powders) and other items, fell 3% to 45, $8 million.
Judy Hong, the company’s chief financial officer, positioned the results as a consequence of the shift to premium products, which she said is necessary for the long term as the market sees price compression and shifting preferences. consumers.
“We have deliberately chosen not to pursue low-margin flower sales and for a cannabis company, transitioning your product line can be difficult,” she told analysts on a call. .
“Had we continued to focus our resources on actively pursuing low-margin flower sales, our Canadian recreational cannabis business would have generated significantly higher revenue in FY22, but at the expense of doing this. which was fair, which put our Canadian cannabis business on a path to sustainable growth and profitability.”
The change comes after cannabis companies have spent years since the legalization of recreational marijuana in Canada in October 2018 driving down prices in a bid to crowd out the illicit market and attract new consumers.
In recent months, many like Canopy have moved away from this strategy and focused more heavily on premium cannabis as it commands higher prices and often has a more loyal consumer.
To help Canopy manage the change, Hong said the company has improved its forecasting processes to ensure it’s more agile in adjusting production to reduce inventory write-offs. Canopy announced inventory write-downs of nearly $120 million in its most recent fiscal year.
Some of the savings from better forecasting will be offset by wage inflation and rising supply chain costs, but Hong said Canopy is still confident it can save between $30 million and $50 million. dollars over the next 12 to 18 months.
Much of these savings will come from a cost-cutting strategy recently implemented by Canopy to make growing cannabis more affordable as well as supply chain efficiencies.
The plan includes retooling facilities, revising sourcing strategies, implementing flexible manufacturing processes, and reducing third-party professional and office expenses.
It was unveiled just as Canopy laid off 243 workers in Canada, Europe and the United States last month.
Pressure to improve the company’s economics has intensified since Canopy announced it would not achieve profitability in the second half of its 2022 fiscal year, as it previously predicted. It has not released a new timetable, but chief executive David Klein said on the same call as Hong that he hopes to achieve profitability “as soon as possible”.
On the way to Canopy, there is a series of net losses. The company posted a net loss of $578.6 million or $1.46 per diluted share for the quarter ended March 31, compared to a net loss of $616.7 million or $1.85 per diluted share a year earlier.
Ahead of the earnings release, BMO Capital Markets analyst Tamy Chen said she expected management to frame the quarter as a “new strategic reset” and provide a “somewhat flexible” timeline for achieve positive EBITDA.
“Given the company’s difficult profits and losses and past difficulties in meeting targets, it would not surprise us if investors approach the new reset plan with initial skepticism,” she said in a statement. note to investors.
Canopy’s results sent its stock price down 15.2% or $1.08 to $6.04 by late morning.
In response to a written question from a shareholder about the “volatile” market, Hong said “share price declines (are) really not unique to Canopy.”
“When you look at the stock price performance of US and Canadian licensed producers, many of those names are down quite substantially from a stock price perspective,” she said.
“Now, from Canopy’s perspective, we’re focused on actually controlling what we can control, which really lays the foundation for long-term sustainable growth and really builds a premium branded cannabis business. as the market goes through these types of cycles.”
This report from The Canadian Press was first published on May 27, 2022.
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