Canopy is expected to take $700-800 million write-downs for Q4 2020.
Canopy Growth Corp. is orchestrating a massive overhaul involving a layoff of 500 workers, a multimillion-dollar writedown, the closure of two greenhouses and the cancellation of plans to operate a third.
The Smiths Falls, Ont., cannabis company revealed the moves, labeled an optimization plan, Wednesday in a press release that attributed the cuts to the Canadian recreational pot market developing “slower than anticipated” and “profitability challenges across the industry.”
The company, which is behind the Tweed, Spectrum Therapeutics, Tokyo Smoke and CraftGrow brands, said the actions will “align supply and demand while improving production efficiencies over time.”
“When I joined Canopy Growth earlier this year, I committed to focusing the business and aligning its resources to meet the needs of our consumers,” David Klein, the company’s chief executive, said in a statement.
“Today’s decision moves us in this direction, and although the decision to close these facilities was not taken lightly, we know this is a necessary step to ensure that we maintain our leadership position for the long-term.”
It deemed the facilities it will scrap – massive greenhouses in Aldergrove and Delta, B.C. – “no longer essential to its cultivation footprint.”
Those greenhouses account for about 278,709 square meters (three million square feet) of licensed production space that was put to use in February 2018, after retrofitting was done to prepare the company to supply the new adult-use cannabis market in Canada.
The company, however, struggled to create working capital, the cannabis market did not mature as fast as it anticipated and federal regulations permitting outdoor cultivation were introduced long after Canopy had begun investing in their greenhouses.
Canopy now operates an outdoor production site that’s made cultivation more cost-effective. It believes that the site will play an important role in meeting the demand for products necessitating cannabis extracts.
The company also said Wednesday that it will no longer go forward with plans to open a third greenhouse in Niagara-on-the-Lake, Ont.
Such decisions are the latest in a string of troubles for Canopy and the industry. It announced in early January that the debut of its cannabis drinks – it has 13 planned – will now be delayed because it requires more time to develop its beverage facility and “the scaling process is not complete.”
In February, it recorded a $124.17-million loss in its third quarter of 2020.
Canopy’s cuts come nearly a month after Aurora Cannabis Inc. slashed 500 jobs, took roughly $800 million in goodwill writedowns and announced the departure of Terry Booth, the Edmonton-based company’s chief executive officer.
Aurora’s news was preceded by Tilray Inc. saying it would lay off 10 percent of its workforce in a bid to cut costs, Sundial Growers axing some of its workforce and Zenabis Global Inc. laying off about 40 staff, mostly in head office roles in Vancouver.