Following C$1.3 Billion Net Loss in Fiscal Q4 2020, Canopy Growth CFO Admits 'We Missed Opportunities'

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Canada's Canopy Growth Corporation (NYSE: CGC, TSX: WEED) today announced its full year and fiscal 2020 fourth quarter financial results, reporting a net loss of C$1.3 billion ($946 million) for the three-month period ending March 31, 2020.

It’s the second time the Smiths Falls, Ontario-based cannabis company has suffered a 10-figure loss in its history.

A majority of the eye-popping losses stemmed from previously announced impairment and restructuring charges, which totaled C$743 million. According to Canopy CFO Mike Lee, who addressed investors and analysts during a conference call on Friday, C$715 of those charges were non-cash.

He added that non-cash charges were primarily driven by fixed asset impairments of C$563 million, of which C$335 million was for “property, plant and equipment” tied to cultivation assets. Another C$193 million of impairments were tied to the company’s exit from certain international markets.

Recall that in March, Canopy announced several cost-cutting measures aimed at right-sizing the business.

That included slashing hundreds of jobs, reducing production capacity by 40% via the closure of two greenhouses in British Columbia that spanned a combined 3 million sq. ft., and shutting down an indoor growing facility in Saskatchewan. The company also shuttered a hemp farming operation in New York, transferred its operations in Africa to a local partner, and moved to an asset-light model in Columbia.

Lee, who said the restructuring efforts would help the company better balance supply and demand, also noted that Canopy recorded C$132 million in write-offs for “obsolete packaging, flower and biomass inventory.”

Canopy’s Q4 net revenue of C$107.9 represented a 13% decline versus the previous quarter, which the company said was primarily driven by “lower Canadian recreational revenue.”

Nevertheless, full-year net revenue of C$399 million was 76% improvement over last year. However, Lee admitted that the company “missed opportunities along the way.”

“Our supply chain grappled with some complex products and production systems, and worked to gear itself against a very dynamic market with shifting demand and evolving consumer preferences and, quite honestly, volatile ordering patterns,” he said.

Canopy generated $108 million in net revenue in Q4, which was “well below demonstrated demand,” Lee conceded.

“Simply put, we missed opportunities,” he said.

Canopy’s weak quarterly results, coupled with executives’ acknowledgment of their missteps, sent the company’s stock plunging on Friday. U.S.-listed shares were down 20%, to $17.37, at the end of the trading day, erasing significant gains from earlier in the week.

In a note to investors, Cowen analyst Viven Azer called Canopy’s Q4 performance “disappointing” but maintained an outperform rating.

“It is clear that much work remains to right size the organization,” she wrote, noting that recently-installed CEO David Klein had accomplished a lot over the past four months.

Speaking during the call, Klein said his strategic review of the company’s operations is “largely complete” and “has the full support” of Canopy’s board as well as Constellation Brands, its largest investor.

“As we all know, Canopy grew quickly to achieve a leading position in a rapidly expanding industry,” he said. “And through that time period, being first was clearly rewarded. But being first isn’t a sustainable strategy, or a point of differentiation. Nor is it necessarily tied to creating value.”

With that in mind, the company said it no longer aims to be the first cannabis company in every market, but rather the best at developing products and generating consumer insights.

“The strategy of being first is no longer relevant,” Klein said.

The company has reportedly designed a “new operating model” that will improve “speed and agility,” Klein said.

Moving forward, Canopy intends to focus on both recreational and medical sales in three core markets -- Canada, the U.S. and Germany -- while "becoming a relentlessly consumer-centric organization."

Additional information about Canopy’s fiscal 2020 financial results and future plans is available on the company’s website.


Tags: Earnings

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