Canopy Growth Stock Drops On Q3 2023 Net Revenue Decline Of 28% YoY, Transitioning To Asset-Light Model

Zinger Key Points
  • Announced cost reduction program of additional CA$140-CA$160 million to be realized over the next 12 months.
  • Restructuring includes significant reduction in production footprint and headcount.

Canopy Growth Corporation CGC WEED released its financial results for the third quarter ended December 31, 2022, revealing net revenue of CA$101 million ($75.4 million), a 28% decrease compared to Q3 FY2022.

Q3 2023 Financial Highlights

  • Gross margin was (2%) as compared to 7% in Q3 FY2022.

  • Net Loss in was CA$267 million, which is a CA$151 million increase in the net loss versus Q3 FY2022, driven primarily by non–cash fair value changes and an increase in asset impairment and restructuring costs.

  • Adjusted EBITDA loss was CA$88 million, a CA$21 million increase in adjusted EBITDA loss versus Q3 FY2022.

  • Cash and short-term investments amounted to CA$789 million at December 31, 2022, representing a decrease of CA$583 million from CA$1,372 million at March 31, 2022.

  • Gross debt amounted to CA$1,206 million at December 31, 2022, representing a decline of CA$295 million from CA$1,501 million at March 31, 2022.

Transition To Asset-Light Model

  • Canopy Growth is transitioning to an asset-light model in Canada by exiting cannabis flower cultivation in the company's Smiths Falls, Ontario facility, ceasing the sourcing of cannabis flower from the Mirabel, Quebec facility, and moving to a third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.

  • The changes come in addition to multiple cost reduction activities within FY2023, including the divestiture of Canopy Growth's Canadian retail operations, the organizational restructuring of certain corporate functions, and the closure of the Scarborough, Ontario research facility.

  • As a result of the cost reduction initiatives undertaken in fiscal 2023, the company intends to close its 1 Hershey Drive facility in Smiths Falls, Ontario, in addition to reducing headcount across the business by approximately 60%, including 800 positions impacted by the announced changes, of which 40% are impacted immediately.

  • Based on our current revenue run rate and these cost reduction initiatives, management reaffirms its expectation to achieve positive adjusted EBITDA in FY2024, with the exception of investment in BioSteel.

  • The company expects to record estimated pre-tax charges of approximately CA$425 - CA$525 million, of which CA$25 - CA$40 million is expected to be cash charges. These pre-tax charges are expected to be substantially recorded in the current quarter and the first half of fiscal 2024. The charges the company expects to incur in connection with these actions are preliminary estimates and are subject to a number of assumptions and risks, and actual results may differ materially. The company may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, these actions.

Canopy Growth continues to progress its U.S. strategy through Canopy USA, LLC and is committed to remaining dual–listed on the TSX and the Nasdaq.

Price Action

Canopy Growth shares were trading 8.76% lower at $2.5 during Thursday’s pre-market session.

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