Canopy Growth (WEED.TO)(CGC) says its transformation strategy is working, even as the world’s most valuable cannabis company sees its sales shrink in the Canadian recreational and medical markets on a quarterly basis.
“We are not satisfied with our current positioning,” Chief executive officer David Klein told analysts on a post-earnings conference call Monday morning. “We know there's more work ahead of us. And we continue to expect full-year 2021 to be a transition year.”
Klein’s overhaul of the cannabis giant started when he took the top job in January. In addition to a greater focus on consumer preferences, and a more streamlined product portfolio, the company has shed more than 1,000 jobs, closed cultivation facilities, and pulled back its international reach to focus on the Canadian, U.S., and German markets in a bid to cut costs.
Canopy said on Monday that it has reduced its staff by 18 per cent since the beginning of the year. The company had 4,434 employees at the end of March, according to recent filings.
Chief financial officer Mike Lee said the restructuring has “substantially” reduced Canopy’s cash burn, adding the company is focused on further changes to “people, process, technology and infrastructure.” Sales, general and administrative expenses fell 23 per cent in the first quarter versus the same period last year.
The Smiths Falls, Ont.-based company topped analyst expectations for its first-quarter 2021 sales, reporting net revenue of $110.4 million, up from $107.9 million in the prior period, and 22 per cent higher on a year-over-year basis.
It also reported a $92 million adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss. Canopy’s net loss came to $128 million, compared to $1.3 billion in the previous quarter. Analysts polled by Bloomberg predicted revenue of $98.1 million, and an adjusted EBITDA loss of $103.3 million for the period ended June 30.
Canopy’s Canadian recreational sales amounted to $44.2 million in Q1 2021, down 11 per cent from $49.8 million in the fourth quarter of 2020, as rising competition in dried flower eroded its once-dominant market share.
The company also said the decline was related to the impact of COVID-19 on an already challenging retail environment. A number of company-owned cannabis stores were forced to temporarily close as a result of the pandemic.
“After seeing its recreational revenues decline by 28 per cent in the prior period on a weak showing in Cannabis 2.0, and lost market share on higher THC flower, we anticipated pressure to continue into FQ1/21,” Canaccord Genuity analyst Matt Bottomley wrote in a note to clients on Monday.
Medical sales slipped to $13.9 million from $14.9 million in the previous quarter, but increased 19 per cent from Q1 2020. Canopy’s international medical cannabis business was a bright spot in the quarter. The company’s German C3 unit reported strong year-over-year sales growth.
Klein said Canopy is “seeing increased momentum” in the United States, where the company is promoting its CBD offerings through a newly launched online store. He said the recently retooled agreement to acquire New York-based pot producer Acreage Holdings (ACRG-U.CN) “refocuses” Canopy’s entry stateside, once cannabis sales are federally permissible.
Last Tuesday, the company announced an endorsement deal with Patrick Mahomes for its Biosteel sports drink subsidiary. The NFL all-star adds to Canopy’s roster of celebrity boosters, which also includes Martha Stewart, Drake, Snoop Dogg and Seth Rogen.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.