Cannabis giant Canopy will shed its workforce by 60% as the recent boom in the legal cannabis industry goes bust
Canopy Growth, backed by Corona beer maker Constellation Brands Inc., will close key operations and shed 60% of its jobs as Canada’s marijuana industry has failed to meet expectations due to competition from a thriving black market.
The downsizing of Canada’s second-biggest marijuana producer is the second restructuring in less than 12 months. Along with the job cuts announced in April, Canopy estimates it can save up to CA$310 million ($230 million) and be profitable, which will help it scale for Canada and enter the U.S. through Canopy USA. In a conference call, Chief Executive Officer David Klein cited Canada’s thriving illicit market for lost sales.
“Today there are two very different cannabis markets in Canada. One that’s legal, heavily taxed and regulated, and one that’s thriving and illegal,” he said, estimating that the black market accounts for about 40% of Canada’s total cannabis sales. That meant the $7 billion marijuana market that was about to emerge in Canada didn’t materialize, Klein said, forcing companies like his, with illegal operators who don’t have to pay taxes, over price to compete.
The company will move to an “asset-light” model in Canada, sourcing many of its products from outside parties. The changes mark the end of Canopy’s cannabis cultivation facility in Smiths Falls, Ontario. Headcount across the company will drop by 800 jobs, the company said in a statement on Thursday.
Shares fell as much as 18% in Thursday trading.
It’s a massive shock for a company that was once the standard-bearer for Canada’s marijuana sector after Prime Minister Justin Trudeau’s administration legalized recreational marijuana use in 2018. That same year, Constellation, the marketer of Corona beer and Robert Mondavi wines, struck a multibillion-dollar deal that earned it a 38% stake in the cannabis company.
Canopy’s complaints about black-market competition mirror those from California and other U.S. states as the marijuana industry lobbies for tax cuts, the ability to open more locations, and other regulations that might favor it.
Canopy was Canada’s most valuable marijuana company — now it’s second-largest after Tilray Inc. — and its market value at one point soared to nearly $20 billion. But business results have fallen far short of expectations, and it has never been able to fulfill Constellation’s high hopes for pot-infused beverages.
The company reported revenue of just $101 million for the fiscal third quarter ended December 31, and lost $88 million on an adjusted basis before interest, taxes, depreciation and amortization.
“Canopy must become profitable to achieve our goal of long-term cannabis leadership in North America,” Klein said in the statement.
Many of the job cuts will be immediate. The move will save an estimated CA$140 million to CA$160 million in merchandise and administrative expenses over the next year and put Canopy’s Canadian business on track to breakeven on an adjusted EBITDA basis in fiscal 2024, said Chief Financial Officer Judy Hong .
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