Canopy Growth to sell Smiths Falls facility back to Hershey Canada for $53M

Canopy Growth has sold its Smiths Falls production facility to Hershey Canada. File photo

The Hershey building in Smiths Falls is headed back into the hands of the company that made the facility famous.

Cannabis company Canopy Growth Corp. announced Thursday that it has signed a deal to sell the building to chocolate maker Hershey Canada, Inc. for about $53 million.

“This project is a strategic acquisition and is another step in our continuing investment in our supply chain network to enable our leading snacking powerhouse vision,” said Todd Scott, a spokesman for The Hershey Co., in an email.

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“The facility provides us with the flexibility to support growth across the CMG (candy, mint and gum) portfolio.”

It is too premature to discuss potential hiring plans or what the company could produce at the 700,000 square-foot facility it sold in 2007, he added.

Meanwhile, David Klein, Canopy’s chief executive, said he was pleased with the deal, which he described as an important sale.

“This is the latest milestone in our focused effort to reduce costs and further enhance our balance sheet,” he said in a statement.

The deal marks a key moment for Canopy, which has been in restructuring mode for several years as it aims to shrink expenses and streamline operations.

Pot companies, including Canopy, have largely been united in slashing costs amid several pressures: consumer demand for weed isn’t what they anticipated, illicit sellers still have a hold on much of the market and the U.S. is moving far slower toward legalization than they imagined.

Like its rivals, Canopy has been making much of its progress toward uncovering savings by closing facilities and reducing its head count dramatically.

The hallmark 1 Hershey Dr. facility – once Canopy’s headquarters and main site for flower and edibles production – didn’t fall into the crosshairs until February, when the company announced it would close the building and consolidate operations.

The company said some 800 staff – about 35 per cent of its workforce – would be laid off as part of that move and a decision to cease sourcing flower from its Mirabel, Que., facility and consolidate its Kincardine and Kelowna, B.C., operations.

By the time the Hershey deal closes, Canopy expects to have let go of seven properties for an aggregate gross amount of about $155 million since April 1.

Net proceeds from the sale of the Hershey building will be used primarily to pay down Canopy’s senior secured credit facility.

In Canopy’s latest quarter, it recorded an almost $42-million net loss compared with a net loss of roughly $2.1 billion a year ago.

The net loss for its first quarter amounted to a loss of about seven cents per basic and diluted share compared with a loss of $5.24 per basic and diluted share a year ago.

However, the company behind the Tweed, Doja, Ace Valley and BioSteel brands managed to cut $47 million in costs, bringing the reductions it has eked out since the start of its previous fiscal year to $172 million.

When Canopy acquired 1 Hershey Dr., the pot market was in growth rather than cutting mode with federal cannabis legalization on its way.

It purchased the building for $6.6 million, including 923,980 in shares, from a group of investors, including one-time Canopy chief executive Bruce Linton and the Guy Saumure company.

As a part owner of the facility before the transaction, Bruce Linton received 70,800 of the 94,397 shares issued. The shares were subject to a four-month lockup.

When the Hershey deal is complete, Canopy will complete post-production flower activity across the street from 1 Hershey Dr. at 99 Lorne St., where it already has a regional distribution centre, bottling facility and beverage capabilities

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