Canopy Growth: 4 things to know from the pot giant’s investor day

(REUTERS)
(REUTERS)

Canopy Growth (WEED.TO)(CGC) mapped out its ambitions to lead a global cannabis market potentially worth $70 billion by 2023 at its virtual investor day on Monday.

Beyond the lofty projections, top executives spoke in detail about some of the near-term challenges and opportunities facing the world’s most valuable cannabis company. 

Here are four key points you may have missed.

More layoffs?

The “strategic review” of Canopy’s staff and operations led by chief executive officer David Klein since early 2020 has resulted in more than 800 layoffs as the company looks to cut costs and eventually reach a gross margin target of 40 per cent. 

While Canopy did not explicitly say more headcount reductions are forthcoming, remarks by chief financial officer Mike Lee suggest layoffs could be in the company’s cards.

“The headcount reductions that we made in April and May will begin to flow through SG&A (selling, general and administrative expenses) starting in Q1 of fiscal 2021. And there’s roughly $20 million of savings on an annualized basis that will start to flow through,” he said on Monday.

“We are still going through (organizational) changes. And as these actions take place, we expect to see further SG&A reductions in coming quarters.”

COVID-19 update

Canopy withdrew its previously stated guidance for net income and positive EBITDA in May, citing uncertainty resulting from the COVID-19 pandemic. Speaking after the company’s fourth quarter financial results last month, Lee said the consumer business fell 50 per cent and wholesale fell 15 below a 13-week average.

On Monday, Lee said recreational sales have improved “modestly” as physical stores reopen, and noted medical sales have remained stable. However, he warned of impacts in the coming quarters as a result of the virus.

"While we work through COVID-19, we are experiencing some lost economies of scale as a result, so we expect our gross margins to be below 30 per cent during this period of pandemic,” he said.

“We continue to expect gross margin pressure in the coming quarters, given that 50 per cent of our production costs are fixed.”

Beverage billions

Canopy has led the way in introducing cannabis-infused beverages to the legal market. The company said it has shipped over 530,000 drinks since its first beverage product hit the market in the spring.

Klein, a transplant from Canopy’s largest investor, beer and wine giant Constellation Brands (STZ), expects his drinks lineup could command five per cent of Canada’s $24 billion booze and $2 billion sports drinks markets. That represents $1.3 billion in retail sales.

Retreating from pharma?

After years of Canopy talking up pharmaceutical-grade cannabis products backed by rigorous clinical research and drug identification numbers, Klein announced last month that the company will no longer focus on developing pharmaceutical products.

On Monday, Klein clarified that point in response to a question from an analyst. 

“We’re going to track away from pure pharmaceutical drug development. I don’t think that that’s our sweet spot. It is quite costly and takes a long time, your likelihood of success we think is fairly low,” he said.

“It’s questionable to the extent that you could get drug identification numbers, or DINs, as it relates to cannabis. We still have a little bit of research that will continue in that area, but most of our efforts will be focused on . . . the U.S. side of the border, what feels a lot more like over-the-counter medications.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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