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Canopy Growth Corp. says it has signed a deal to sell its facility in Smiths Falls, Ont., that was once home to a Hershey chocolate factory back to the chocolate maker. Staff work in a marijuana grow room at the facility in Smiths Falls, Ont., on Aug. 23, 2018.Sean Kilpatrick/The Canadian Press

After a decade playing host to hundreds of thousands of cannabis plants, 1 Hershey Dr. in Smiths Falls, Ont., is returning to its munchie-making roots.

Hershey Canada Inc., which operated the eight-building site as a chocolate factory for half a century before moving production to Mexico in 2007, will pay Canopy Growth Corp. WEED-T $53-million in cash for the facility, the cannabis company announced on Thursday.

Hershey said candy, mint and gum production – which includes chocolate – will once again be based in the facility.

While Hershey had previously employed roughly 700 people in the 700,000-square-foot space, company spokesperson Todd Scott said it would be “premature for us to discuss” how many it would be hiring this time.

The sale of Canopy’s head-office building represents a rare profitable deal for the struggling cannabis producer as it attempts to cut hundreds of jobs and reduce costs in hopes of staving off defaulting on its mountainous debt load.

Canopy, then known as Tweed Marijuana, acquired the former chocolate factory in 2013 for $7-million. Tweed co-founders Bruce Linton and Chuck Rifici had purchased the property with a group of investors earlier that year from corporate barter company ICON International for just $1.6-million.

Better For It: From cannabis boom to bust: Why Bruce Linton was fired from the company he created

At its peak in early 2019, when Canopy boasted a market cap of roughly $18-billion, the company employed more than 1,800 people in Smiths Falls. With a total population that has long hovered around 10,000, the community once known as Skid Falls was transformed into a boomtown.

The sale announced Thursday, which brings the total number of properties Canopy has sold since the beginning of April to seven, throws Smiths Falls back into economic limbo.

Once the transaction is complete, Canopy will still employ roughly 450 people in Smiths Falls at its manufacturing hub across the street from 1 Hershey Dr.

The $155-million Canopy has made from its latest round of asset sales will go toward paying down its debt. However, analysts have been warning for some time that the company simply does not have enough assets to sell or jobs to cut.

“Even if the cost-cutting targets are reached, that still places the company in a difficult position where it potentially needs to raise equity to fund operations,” CIBC analyst John Zamparo told clients in a note published on Aug. 10.

That could be challenging as Canopy’s Toronto Stock Exchange-listed shares have lost more than 80 per cent of their value since the start of 2023.

“Until the company can show tangible evidence of improving financial performance, we do not see a meaningful catalyst to warrant share price appreciation,” TD Cowen analyst Vivien Azer said in an Aug. 10 note to clients.

After what Mr. Zamparo described as a “flurry of activity Canopy has undergone over the past few months to improve its balance sheet,” he estimated that the company will have $275-million in cash and $585-million in debt by the end of September.

While that is a substantial improvement from the $600-million in cash and $1.2-billion in debt Canopy had as of June 30, he said the company is “not out of the woods yet.”

Canopy will burn through $240-million in negative free cash flow over the next 12 months, according to Mr. Zamparo’s most recent calculations, meaning it “could run out of cash in late 2024.”

BioSteel, the sports-drink producer in which Canopy acquired a 72-per-cent share in October, 2019, for $50.7-million, has been a major drag on the company’s push toward profitability. Canopy was forced to remove tens of millions of dollars in sales from prior quarters when it disclosed “material misstatements” from BioSteel alongside its fourth-quarter financial results in June.

The BioSteel business currently loses more than $100-million each year, according to Mr. Zamparo. If Canopy can sell BioSteel that would “materially extend” the company’s timeline as a going concern.

“But assuming the expedient sale of an extremely unprofitable asset that’s undergone restatements and is the source of shareholder lawsuits isn’t something we’re setting our watches to,” he said. “It will take creative deal-structuring to extract value, but just avoiding the losses would be extremely useful to Canopy.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
WEED-T
Canopy Growth Corp
-0.08%12.52

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