Canopy Growth Cites ‘Growing Pains’ For Dull First Trimester

The dynamics also depend on the continued reopening of the economy.

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“It’s a complicated business.”

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Those words, spoken by Canopy Growth CEO David Klein near the end of an hour-long conference call on Friday, summed up his company’s current challenges very well.

While the Smiths Falls cannabis giant generated net income of $ 136 million for its first fiscal quarter ended June 30 – up 23% from the previous year – it lost $ 64 million on an adjusted basis and lost market share. The fault, Klein said, was on the inside – “growing pains,” he explained. He and his colleague, CFO Mike Lee, spent part of the call talking about the different challenges of running a new business. In particular, executives promised to better plan operations, forecast demand for products and move them to manufacturing plants.

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To be fair, it is not an easy business to regulate, not least because it is still very new and heavily and unevenly regulated. Canada legalized recreational marijuana in October 2018 and continued a year later by legalizing the sale of cannabis-infused foods and drinks. Dozens of US states have since followed suit, but the US federal government has yet to do so.

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To achieve economies of scale in a competitive business, Klein needs a lot of leverage. Although Canopy Growth is posting annual revenue of over $ 540 million, the company does not expect to generate profits until its fourth quarter ending March 31. And this projection is based on two very important assumptions: first, that revenues will increase sharply in Canada and the United States over the next three quarters; and, second, that relatively more of Canopy Growth’s sales are in high-end products with higher profit margins.

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The dynamics also depend on the continued reopening of the economy. During the pandemic, when sales were mostly online, the company struggled to market its high-end products. People go with what they know, executives observed. It takes in-store persuasion to create change.

In the nearly 20 months since Klein took over as CEO of Canopy Growth, he has dramatically changed the physical shape of the business. Klein, a former executive at wine, beer and spirits giant Constellation Brands, laid off a quarter of Canopy Growth’s workforce and launched dozens of new cannabis and related products.

After closing sites last December in Saskatchewan, Scarborough, Bowmanville, Fredericton and St. John’s, the size of Canopy Growth’s Canadian workforce has shrunk from 1,000 to about 2,400 as of March 31. Not quite half of them operate from the company’s head office in Smiths Falls. The employee base outside of Canada slipped from a modest 160 to 900.

About Aldrich Stanley

Aldrich Stanley

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