Cannabis producer Canopy Growth Corp. WEED-T is moving forward with the largest round of job cuts and cost reductions in its decade-long history.
The company, which once boasted a larger stock market capitalization than Canadian Tire Corp. Ltd. CTC-T and Shaw Communications Inc. SJR-A-X, announced Thursday plans to adopt an “asset-light” model in Canada. More than one-third of Canopy’s staff – about 800 people – will lose their jobs as a result of the plan.
Canopy’s flagship production facility, housed alongside its headquarters in a former Hershey chocolate factory in Smiths Falls, Ont., will also be closed.
In a statement, chief financial officer Judy Hong said the “right-sizing” of Canopy’s Canadian business will significantly reduce cash costs. The company expects to save from $140-million to $160-million over the next 12 months.
At its peak in early 2019, Canopy had a market cap of about $18-billion. The company is now worth less than $2-billion. In a note published after Thursday’s announcement, Stifel Financial Corp. analyst Andrew Carter said future success will “largely depend on investor enthusiasm amid an environment where cannabis sentiment is at best apathetic.”
It’s another disappointment in a story that began on a hopeful note in 2013, when Canopy – then known as Tweed Marijuana Co. – took over the factory that Hershey Canada had abandoned five years earlier, costing Smiths Falls, a town of about 9,000 people south of Ottawa, more than 500 jobs. Two years before Justin Trudeau’s Liberals swept to power in 2015 promising to legalize recreational cannabis, Canopy was among the sector’s earliest movers, with ambitions to become a global leader.
Instead, the announcement Thursday was the latest of several rounds of layoffs, facility closings and cost-cutting efforts Canopy has launched after years of repeatedly postponing targets for reaching profitability. Canopy’s stock has lost nearly 94 per cent of its value over the past two years, falling from a February, 2021, high of $54.76 to close at $3.06 on the Toronto Stock Exchange Thursday, though the company’s declining fortunes started earlier.
In June, 2019, less than a year into legalization and despite U.S. alcohol conglomerate Constellation Brands Inc. investing $5.2-billion into the business the year before, Canopy started reporting huge losses. For its fiscal fourth quarter ended March 31, 2019, Canopy lost $323-million, nearly four times what analysts expected.
“There was a time when you guys were talking about getting [earnings] positive once you had adult-use revenues,” Cowen and Co. analyst Vivien Azer said on an analyst call at the time.
Bruce Linton, Canopy’s co-founder and then co-chief executive, responded that profitability would come shortly after cannabis edibles became legal later that year, which he said was what the company was “built for.” He was fired two weeks later.
As part of the “asset-light” strategy unveiled Thursday, Canopy will cease all internal production of edibles, beverages, vapes and extracts, moving instead to sourcing those products from third parties. The company, which once funded a $2.5-million professorship for cannabis research at the University of British Columbia, will also stop most research programs as part of the strategy, outsourcing its genetics program to Quebec-based Exka Inc.
Dried flower, prerolled joint, softgel and oil manufacturing will be consolidated in a recently built facility in Smiths Falls that was originally designed to produce cannabis-infused beverages, the company said.
The latest round of cuts should help Canopy reach operating profitability by fiscal 2024, the company said, though it had previously expected to reach that goal by late fiscal 2022 after having already spent years implementing multiple cost-reduction strategies.
In March, 2020, the company announced its first major head-count reduction, laying off 500 staff and shuttering two British Columbia greenhouses it had purchased two years earlier for nearly $400-million. Several smaller rounds of job cuts followed – affecting dozens of positions rather than hundreds – before Canopy announced another 250 layoffs in April, 2022.
Two months later, Canopy reached a deal to exchange roughly one-fifth of its total debt load worth $255-million for shares, plus roughly $3-million in cash. Shareholders revolted, sending Canopy’s TSX-listed shares down nearly 19 per cent in a single day, from $4.49 a share on June 29 to $3.66 on June 30.
Throughout that turmoil, Canopy was receiving tens of millions of dollars in federal government funding. According to a database maintained by the federal Commissioner of Lobbying, Canopy received $16-million in government funding in 2021 and another $69.1-million in 2022.
Nowhere will Canopy’s latest round of cutbacks be felt more acutely than in Smiths Falls, a 40-minute drive south of Ottawa, which was once known as “Skid Falls” before Canopy’s arrival led to a major rebound for the community.
With a file from Reuters