Canopy Growth restructures Canadian operations, to lay off 800 in latest cost-cutting move
Canopy announced Thursday that it will now grow its cannabis at two facilities in Kelowna, BC and Kincardine, Ontario while it is ending its cultivation in Smiths Falls, Ontario. headquarters and through its joint venture in Mirabel, Que. It will also cease production and seek third parties to manufacture its vape, beverage, edible, and extract products while focusing its internal efforts on higher-margin categories like floral, pre-rolls, softgels, and oils.
In addition to restructuring its manufacturing and operations structure, Canopy said it will reorganize some of its departments, such as sales and marketing, into smaller workgroups. To save on research and development costs, Canopy will work with Quebec-based EXKA Inc. to manage its cannabis genetics program rather than developing future strains in-house. And Canopy said it will also reduce the number of in-market branded and SKU products sold in Canada by about 25 percent and 50 percent, respectively, to focus on more profitable items.
As a result of the changes, Canopy said it will lay off about 800 employees in the coming months, a number that accounts for about 35 percent of its total workforce. The company expects a pre-tax charge of between $425 million and $525 million as a result of the cuts announced Thursday.
“Canopy must become profitable to achieve our goal of long-term cannabis leadership in North America,” said David Klein, Canopy’s chief executive officer, in a statement. “We are converting our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to guide our business to profitability and growth.”
Canopy’s announcement marks another round of closures and layoffs the company has gone through since cannabis legalization in October 2018, when the company was poised to lead the burgeoning recreational marijuana market. With $5 billion in cash from an investment by alcohol giant Constellation Brands Inc., Canopy launched a nationwide blitz with manufacturing facilities and offices across Canada to lead the country’s cannabis market.
Due to a confluence of factors, including an exponential increase in competing producers, differing provincial retail regulations, restrictive excise taxes, and fickle recreational cannabis users who have complained about the quality of some of Canopy’s products, the Company has dramatically reduced its presence in Canopy Canada.
In March 2020, Canopy announced it would close two major cannabis production facilities in British Columbia, which would result in the loss of approximately 500 workers. Nine months later, Canopy closed five other manufacturing facilities in St. John’s, Fredericton, Edmonton and Bowmanville, Ontario. and at an outdoor grow facility in Saskatchewan, resulting in the layoff of 200 employees. Canopy later closed a greenhouse in Niagara-on-the-Lake, Ontario, and sold its Danish cannabis operations to a local company, while divesting its Tokyo Smoke retail division to break a steady stream of quarterly losses.
Canopy — which reported its financial results for the third quarter on Thursday — reported a cumulative loss of $2.2 billion for the first half of its current fiscal year and has also posted sizeable losses at its operations since 2019. Canopy reported a 28 percent decline in third-quarter revenue to $101.2 million while posting a net loss of $266 million on Thursday.
To stem further losses, Canopy plans to formalize its U.S. operations, which include three major cannabis companies it previously announced it would acquire, once the drug is legalized federally in the U.S
Canopy is awaiting shareholder approval to create its standalone division, Canopy USA, which will control US multi-state operator Acreage Holdings Inc., edibles maker Wana Brands and Jetty Extracts, while also incorporating Constellation Brands-controlled capital in a new share will convert class.
The company said it has already received tacit approval from the Toronto Stock Exchange, but it’s unknown if the plans will be on the side with the Nasdaq exchange.