Canopy’s recreational cannabis segment is struggling

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Canopy Growth Corporation

Canopy Growth Corporation (CNW Group/Canopy Growth Corporation)

Bethan Rose Jenkins, Cannabis News Writer/Editorial

Canadian cannabis company Canopy Growth Corp., is on a mission to restructure its business plan after suffering a CAD$1.3 billion (USD $944 million) blow to its finances. Based on a recent earnings report released by the company, Canopy’s fourth quarter revenue for recreational Cannabis sales – for the period concluding on March 31 – sunk by 28 percent from the previous year.

What’s more, the international cannabis giant also reported a 13 percent loss in net revenue for Q4. In an attempt to recover from the financial pitfalls it has recently endured, Canopy’s company officials have announced a brand new redemption strategy. In April, 200 employees were laid off as part of the restructuring efforts. 

“Although difficult, the decisions that have been made over the last few months are to allow Canopy Growth to remain focused on the areas where we are winning and ensure that we are delivering the highest quality products to our consumers in every market where we operate. For a long time Canopy has prioritized doing things first, but going forward we’ll be focused on doing things the best in the markets and in the product formats that show the greatest promise,” said Chief Executive David Klein in a statement.

Canopy Growth’s Q4 EBITDA loss topped USD$75 million 

Based on the results of Canopy’s Q4 losses, the Smith’s Fall, Ontario-headquartered company reported an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of CA$102 million — equivalent to USD$75 million.

In comparison with Q4 2019, revenue dropped 28 percent to CA$49.8 million (USD$37 million) for the final quarter of 2020 fiscal year. This came as a shock to Canopy, what with recreational cannabis sales increasing elsewhere across Canada’s legal market when the COVID-19 pandemic erupted.

“Simply put, we missed opportunities.” These were the words of Canopy’s Chief Financial Officer, Mike Lee, during a recent investor call. He says that Canopy’s recreational segment decreased “from the low 20s to the high teens.” This reduction in sales was directly linked to sales of flower products and pre-rolls.

Canopy Growth’s rollout of “cannabis 2.0” products impacted recreational sales

The launch of “cannabis 2.0” products are believed to have been a contributing factor in Canopy’s Q4 losses. CFO Lee attributes the rollout – which included a range of alternative products with higher margins than traditional flower products, such as beverages, edibles and vapes – to the glut in company turnover.

According to Lee, products in this category constituted just two percent of Canopy’s total sales for Q4. Nonetheless, cannabis 2.0 – which initially arrived in Canada at the start of the year – will not be eliminated from the product range. 

“And although we recognize this significant headwind to our performance, we are committed to phasing these products into the market, to ensure that we maintain the quality that our consumers demand while being able to produce enough product to fill the pipeline,” said Lee, who also made a point of noting that the company’s sales declined during mid-March as a result of coronavirus.