After a dramatic restructuring that included the elimination of up to 1,000 workers, Canopy Growth says profitability is on the horizon.
The Smiths Falls-based business behind the Tweed, Houseplant and Tokyo Smoke cannabis brands announced Tuesday that it expects to be profitable in the second half of its fiscal 2022.
“We're at the end of that transition year and our team has made great progress,” chief executive David Klein told analysts. “We are firmly on a path to profitability.”
The path to get there has not been easy for Klein, who has been at the helm of Canopy for roughly a year now after taking over for company co-founder Bruce Linton.
Much of it was spent grappling with a Canadian recreational pot market that is developing slower than anticipated, necessitating the closure of several Canopy growing facilities and prompting the company to report multimillion-dollar losses.
On Tuesday, Canopy announced it incurred a loss of $829.3 million in its latest quarter as it was hit by impairment and restructuring charges related to cuts it made late last year.
The loss amounted to $2.43 per diluted share for the quarter ended Dec. 31, compared with a loss of $109.6 million or 26 cents per share a year earlier.
Canopy said the third-quarter results included $416 million in impairment, restructuring and other related charges plus $291 million stemming from non-cash fair value changes, mostly driven by the company's higher stock price.
Klein is confident the losses won't become a pattern because he is seeing promise in the U.S. market alongside a host of products designed with celebrity chef Martha Stewart.
With the Democrats now controlling the White House and the U.S. Congress, he is expecting significant cannabis reform to take place soon and was excited by U.S. President Joe Biden's recent commitments to introducing pot reform legislation.
“We anticipate that this legislation will include comprehensive reform to ensure restorative justice, protect public health and implement responsible taxation while ending cannabis prohibition,” said Klein.
Success with CBD gummies
“We believe that this legislative package or a combination of reform measures could allow Canopy to enter the U.S. THC market during calendar 2021.”
Canopy is already seeing success in the market with cannabidiol (CBD) gummies it released with Stewart in November.
The gummies, which are sold in hundreds of U.S. nutrition stores, are inspired by chewy French confections called pate de fruit and come in flavours like passionfruit, calamondin, quince, huckleberry and kumquat.
“In just four months since launch, Martha Stewart CBD products have already exceeded the annual sales of over 94 per cent of all CBD brands sold in the U.S., and based upon the current run rate, Martha would rank among the top three per cent of all CBD brands,” Klein said.
At least a third of the people who have purchased the gummies are first-time CBD users – a much-sought-after portion of the market.
Stewart, who owns Chow Chows and French bulldogs, has also turned her attention to pets. Last month, she unveiled a line of oil drops and soft-baked chews for animals.
Canopy's CBD products are meant to support pet mental health, reduce stress and maintain mobility.
Canopy will continue to work on Stewart's products and on improving the quality and aromatics of its cannabis flower, a mission the company has long focused on in hopes of boosting its customer satisfaction and sales, said Klein.
He also revealed that net revenue in the third quarter amounted to $152.5 million, up from $123.8 million in the same quarter a year earlier.
Cannabis net revenue totalled $98.8 million, up from $90.4 million a year earlier, while other revenue rose to $53.7 million, compared with $33.4 million a year ago.
The results pushed Canopy's stock up to $63.51, an increase of $7.79 or almost 14 per cent in mid-afternoon trading on the Toronto Stock Exchange.