- Canopy Growth Corporation (TSX:WEED) will cease all funding to its BioSteel Sports Nutrition unit
- The subsidiary has commenced proceedings for a bankruptcy sale, from which Canopy expects to recover proceeds
- Canopy Growth is a North American cannabis and consumer packaged goods company
- Canopy Growth stock (TSX:WEED) is up by 11.53 per cent trading at $1.74 per share
Canopy Growth Corporation (TSX:WEED) will cease all funding to its BioSteel Sports Nutrition unit.
The sports drink subsidiary has initiated proceedings under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice seeking recognition under Chapter 15 of the United States Bankruptcy Code.
The move is part of Canopy’s plan to “simplify its business, reduce cash burn and focus on its core cannabis operations,” according to a statement released Thursday. The BioSteel business accounted for approximately 60 per cent of Canopy’s Q1 FY2024 adjusted EBITDA loss.
The company also anticipates that disposing of BioSteel will remove previously identified material weakness related to the unit. As BioSteel’s senior secured lender, Canopy expects to recover proceeds from the anticipated bankruptcy sale.
Canopy expects to achieve positive adjusted EBITDA in “all remaining business units exiting FY2024” as it focuses on growing its Canadian and U.S. cannabis businesses.
“Canopy Growth has marked yet another major milestone in our transformation plan, as while BioSteel’s business has shown significant year-over-year revenue growth, and we believe the brand remains an attractive asset, it does not align with Canopy Growth’s cannabis-focused asset-light strategy. We have repeatedly demonstrated that we will take decisive action to enhance our profitability and ensure we are focused and positioned to be a leader in the North American cannabis sector,” David Klein, CEO of Canopy Growth Corporation, said in the statement.
The news follows Canopy Growth stock’s over 50 per cent gain during Monday trading because of an upcoming U.S. Senate vote to remove penalties for companies that bank with legitimate cannabis businesses.
The Department of Health and Human Services also recently recommended reclassifying cannabis as a Schedule III drug, down from Schedule I, which would lessen regulatory obligations on businesses in the sector.
Canopy Growth’s ongoing business transformation
Following mass overproduction and dwindling margins across the cannabis space, Canopy has been actively engaged in a right-sizing strategy to fortify its leadership position. Highlights include:
- A C$349 million reduction in overall debt since July 1, 2023, with a further C$95 million expected over the next two quarters
- An agreement to sell its Hershey Drive facility for C$53 million
- Cost reductions of C$172 million since the beginning of FY2023, including C$47 million in Q1 FY2024
- Restructuring initiatives expected to reduce SG&A and cost of goods sold by a combined C$240 million to C$310 million by the end of FY2024
Canopy Growth is a North American cannabis and consumer packaged goods company. Its brands include Doja, 7ACRES, Tweed, Deep Space, This Works, Martha Stewart CBD and Storz & Bickel. It has exposure to the U.S. market through rights to Acreage Holdings, Wana Brands and Jetty Extracts.
Canopy Growth stock (TSX:WEED) is up by 11.53 per cent trading at $1.74 per share as of 9:38 am ET. Despite shares being up by over 200 per cent from their one-year low, they remain down by more than 90 per cent over the past five years.
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