Canopy Growth to Shutter 5 Facilities, Cut 220 Jobs
In its continued pursuit of profitability, Canada’s Canopy Growth Corporation (TSX:WEED, NYSE: CGC) is once again trimming costs.
The vertically integrated cannabis giant announced Wednesday plans to close several production facilities across Canada in a move that will impact more than 200 employees.
In a news release, the cannabis firm said it would abandon outdoor growing operations and eliminate 17% of its indoor cultivation footprint.
In addition to walking away entirely from growing cannabis outdoors in Saskatchewan, the company will cease indoor operations at sites in:
- a yet to open facility in St. John’s, Newfoundland and Labrador (150,000 sq. ft.)
- Fredericton, New Brunswick (87,000 sq. ft.)
- Edmonton, Alberta
- Bowmanville, Ontario (60,000 sq. ft.)
Approximately 220 workers will lose their jobs as the Smith Falls, Ontario-based company – like other major Canadian cannabis players – works to better align an overwhelming supply of marijuana with current market demand. Data from Health Canada indicates that cannabis companies had 782,698 kg. of unpackaged dried flower inventory as of August.
According to CEO David Klein, the move is expected to save the company as much as C$200 million and allow it to continue meeting current and future demand.
“This was a difficult decision, but I believe it is the right one,” he said via a statement.
Shrinking the operation will force Canopy to record pretax charges of between C$350 million and C$400 million during its fiscal third and fourth quarters of 2021, Klein said. That’s on top of $800 million in write-downs the company took during its fiscal fourth quarter of 2020.
Nevertheless, Klein said the decision to close additional facilities was necessary as Canopy works to become a profitable enterprise.
“These actions will be an important step towards achieving our targeted $150-$200MM of cost savings and accelerating our path to profitability,” he said.
Last month, Canopy reported a net loss of C$97 million during the first quarter of fiscal quarter of 2021.
These aren’t the first steps Canopy has taken to reduce costs and achieve profitability. In March, the firm closed two greenhouses in British Columbia -- which spanned a combined 3 million square feet -- and canceled plans to bring a third indoor site online in Ontario. It also slashed 500 jobs.
The following month, Canopy eliminated another 85 full-time positions, shuttered an indoor cultivation facility in Canada, and halted hemp farming at a 1,000-acre site in Springfield, New York. It also ceased cultivation operations at a location in Colombia and unloaded an operation in South Africa.
Other Canadian cannabis firms have also closed facilities and slashed jobs this year.
In June, Aurora Cannabis said it would eliminate more than 700 positions and close five facilities. And in May, After cutting 10% of its workforce at the beginning of the year, Tilray shuttered an indoor production facility in a move that impacted another 120 workers.
According to Jerfferies analyst Owen Bennett, Canopy's latest cuts are expected to improve gross margins, reduce cash burn, and "help bring SG&A in to more reasonable levels."
Bennett also estimates that Canopy's total cultivation capacity is around 162,500 kg, behind Aphria's 225,000 kg but ahead of Aurora's 129,000 kg.
Shares of CGC finished the trading day down 5.62% to $27.20.
In related Canopy news, Andrew Rapsey, the company’s Global Head of Beverages, announced on LinkedIn that he was departing the organization less than one year after joining the organization.
“I'm incredibly grateful for the teammates at Canopy Growth Corporation and excited to see how the drinks business evolves in the next 6-12 months,” he wrote.
That decision comes just weeks after Truss Beverages Incs., the joint venture between competitor HEXO Corp. and Molson Coors, surpassed Canopy as the leading cannabis drinks producer by market share in Canada.