Business
Canopy Growth to lay off 800 employees
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Canopy Growth Corp. will lay off 800 workers as part of a transformation plan that will see the company close its hallmark 1 Hershey facility and consolidate some of its cultivation operations.
The Smiths Falls, Ont., cannabis company said Thursday that the layoff will impact 35 per cent of its workforce, with 40 per cent of the cuts happening immediately and the remainder taking place over the next several months.
The move is meant to help the company behind brands like Tweed, Quatreau, Doja and Ace Valley reach profitability and enable sustainable and long-term growth. Both have become difficult because the illicit market still captures about 40 per cent of all pot sales and the Canadian cannabis sectoris valued below the $7 billion that was once projected, said David Klein, Canopy Growth’s chief executive.
“We expect the sector challenges to remain for years to come and as a result, the sustainability of this legal sector is in question,” he said Thursday on a call with analysts.
Canopy’s share price tumbled 16 per cent to $3.08 in mid-morning trading after the company revealed its net loss amounted to $266.7 million or 54 cents per diluted share for the third quarter, which ended Dec. 31. The result compared with a net loss of $115.5 million or 28 cents per diluted share in the same quarter a year earlier.
Canopy said the larger loss was driven primarily by non-cash, fair-value changes and an increase in asset impairment and restructuring costs.
Net revenue for the quarter totalled $101.2 million, down from $141.0 million a year earlier.
As a result of the measures announced Thursday, Canopy will take a pre-tax charge between $425 million to $525 million, but hopes to achieve savings between $140 and $160 million in the next 12 months.
Staffing cuts to cultivation, manufacturing and other areas of operations will deliver $45 to $50 million in annualized cost of goods sold savings alone, said Judy Hong, the company’s chief financial officer, on the same call as Klein.
Other savings will come from winding down operations at 1 Hershey Dr. in Smiths Falls, just south of Ottawa, where chocolate company Hershey once had a factory.
One Hershey, which has long been Canopy’s headquarters, was the company’s main site for flower and edibles production, but also housed office space.
The company will now complete post-production flower activity at 99 Lorne St., which is across the street from 1 Hershey and already has a regional distribution centre, bottling facility and beverage capabilities.
Canopy will also cease to source flower from its Mirabel, Que., facility, which is owned and operated through Les Serres Vert Cannabis Inc., a joint venture partnership between the company and Les Serres Stephane Bertrand Inc., a tomato greenhouse operator.
Canopy previously purchased pot from the joint venture, but will cease that activity and now move to a more flexible sourcing strategy to ensure Quebec-grown products are brought to consumers in the province.
The company is still in discussions about the long-term future of the site, Klein said.
Rounding out the facility changes will be the consolidation of cultivation at Canopy’s Kincardine, Ont., and Kelowna, B.C., sites.
As the company transitions its facilities and operations, it will work to balance in-house with third-party manufacturing by focusing internal capabilities on flower, pre-rolls, softgel capsules and oils. It will rely on third-parties when sourcing vapes, beverages, edibles and extracts.
The final part of the changes comes in the form of a partnership with Quebec-based EXKA, which holds the world’s largest cannabis library. The company will now manage Canopy’s genetics program, ensuring Canopy can preserve its investments in genetics but also receive optimized strains and new cultivars.
Canopy’s transformation plan comes after years of Canadian pot companies slashing workforces and tightening operations in a bid to reach their long-awaited goal of profitability.
Making the goal tough to reach has been the strength of the illicit market, a slow move toward federal legalization in the U.S. and sales that have underwhelmed when compared with lofty estimates some cannabis company executives first foresaw for the industry.
“Today there are two very different cannabis markets in Canada: one that is legal, highly taxed and regulated and one that is thriving and illicit,” Klein said.
“The unregulated, illicit market is generating billions of dollars of dollars of revenue with 40 per cent of market share and faces virtually no risk of enforcement.”
The Ontario Cannabis Store said in March that the illicit market share is 43 per cent.
As a result, the legal sector is forced to compete on price “out of necessity,” he said.
The average price for cannabis was $11.78 per gram at the start of 2019, shortly after legalization, but fell to $7.50 per gram in 2021, a November report from Deloitte Canada and cannabis research firms Hifyre and BDSA said.
The average price for vape cartridges has similarly fallen by 41 per cent from $32.02 per gram around legalization to $19 per gram a year later.
Such drops have prodded Canopy into refocusing its product mix on the premium sector, which typically commands higher prices and generates a more loyal consumer basis than value items.
“We deliberately chose not to chase the value segment, which has had a dampening effect on our topline because of the growth of that segment,” Klein admitted.
“We didn’t believe we could build a profitable, sustainable business at the value level in the Canadian market.”
The move toward premium was coupled with an ongoing cost-cutting plan in recent years involving hundreds of job cuts, the retooling of its facilities, reviewing procurement strategies, implementing flexible manufacturing processes and reducing third-party professional and office fees.
Canopy is also still awaiting shareholder approval for Canopy USA, a separate entity that will combine U.S. pot company Acreage Holdings Inc. with edibles businesses Wana Brands and Jetty Extracts.
This report by The Canadian Press was first published Feb. 9, 2023.
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Regular shoppers at Nova Scotia liquor stores faced significant price hikes Monday on beer, wine and spirits.
Retiree John McCracken was picking up his usual bottle of wine when he spoke to CTV News outside the NSLC store on Joseph Howe Drive in Halifax.
“I bought last week, the same bottle was $2 less,” said McCracken. “We’re talking like $15, $16 bottle of wine. So not high-end wine.”
“If you go into that liquor store right now, people are going to be shocked.”
Workers were replacing pricing signs in all stores on Monday, but officials insist the overall increase only amounts to about 3 per cent.
“It has to do with overall costs to our supplier community. So that could be anything from freight, transportation, commodities costs, things like glass or aluminum, or other commodities like barley — all of those things are seeing an increase in price, and that’s what factoring in to the overall price increase,” said Allison Himmelman, a spokesperson for the Nova Scotia Liquor Corporation (NSLC).
She says the increase is below the cost of inflation.
Last month, the corporation reported a healthy earnings increase of 6.6 per cent.
On April 1, federal excise taxes are set to increase another 6.3 per cent — the biggest increase in 40 years.
“The excise tax is actually just one factor that goes into our overall prices here at the NSLC,” said Himmelman.
“And it’s actually a very small factor because not all suppliers choose to pass on that excise tax to their retail product prices.”
Still, some local bars and restaurants say the hikes will have to be passed on to customers, which will hurt business.
“There’s no doubt, yeah, we can’t absorb it,” said Dimo Georgakakos, owner of the iconic Gus’ Pub & Grill in Halifax’s north end.
“We’ve been absorbing so many things, and in the bar business we’re a stoic bunch, and we just sort of put our heads down and keep doing it. And now, they just sort of do that and we’ve got to pass it on and it’s going to make customers come here less,” said Georgakakos, son of the bar’s founder.
He and others are still recovering from lost business in the pandemic, and worry many customers have gotten used to staying home.
“In general, things are not going to get back to the way they were,” said Georgakakos. “It’s going to be different.”
NSLC notes that increased revenue from price adjustments is also shared with producers, including Nova Scotia wineries, brewers and distillers.
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Decision made nearly two weeks after former chairman Ammar Al Khudairy said the kingdom’s biggest bank by assets would not buy more shares in Credit Suisse on regulatory grounds.
Saudi National Bank, the largest shareholder in Credit Suisse before the bank’s rescue this month, named a new chairman after the lender suffered significant losses on its investment.
CEO Saeed Mohammed Al Ghamdi will take over as the new chairman from Ammar Al Khudairy, who resigned for personal reasons, the bank said on Monday. Deputy CEO Talal Ahmed Al Khereiji takes over as acting chief executive, a bourse statement said.
All changes are effective on Monday and come nearly two weeks after Al Khudairy said the kingdom’s biggest bank by assets would not buy more shares in the Swiss financial institution on regulatory grounds.
The remarks were seen as a trigger to a further sell-off in Credit Suisse’s shares and intensified a crisis of confidence in the lender that had already seen clients pull out more than $110bn in the last three months of 2022.
Combined with global jitters in the banking sector and an already weakened share price, Al Khudairy’s comments contributed to Credit Suisse losing a fifth of its value, which eventually forced it into a takeover by its domestic rival UBS for $3.2bn.
Saudi National Bank, which acquired almost 9.9 percent of Credit Suisse for 5.5 billion riyals ($1.46bn) in November, has itself lost more than $26bn in market value since October 27 after committing to the investment.
By last week, it was sitting on a loss of more than $1bn but said on March 20 that the drop in its investment’s value had no impact on its growth plans and would not affect profitability.
Al Khudairy also said this month that the bank was not looking at any international acquisitions now and instead was focused on its Saudi business.
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Equities
Canada’s main stock index opened up on Monday with energy and financial stocks adding upward pressure. On Wall Street, key indexes also started higher after a deal to acquire a big chunk of Silicon Valley Bank helped ease concerns about the health of the sector.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 58.63 points, or 0.3 per cent, at 19,560.12.
In the U.S., the Dow Jones Industrial Average rose 39.19 points, or 0.12 per cent, at the open to 32,276.72. The S&P 500 opened higher by 11.94 points, or 0.30 per cent, at 3,982.93, while the Nasdaq Composite gained 44.58 points, or 0.38 per cent, to 11,868.54 at the opening bell.
Overnight, First Citizens said it would buy Silicon Valley Bank’s deposits and loans along with certain other assets from the U.S. Federal Deposit Insurance Corporation.
The FDIC said in separate statement it has received equity appreciation rights in First Citizens stock with a potential value of up to U.S. $500-million as part of the deal, Reuters reported. First Citizens said the transaction was structured to preserve its solid financial position and the combined company will have a diverse loan portfolio and deposit base.
SVB’s collapse, the biggest since the 2008 financial crisis, earlier this month sent shockwaves through the global banking sector, triggering huge market volatility and an heightened focus on the health of institutions around the world.
In Canada, Finance Minister Chrystia Freeland delivers the federal government’s next budget on Tuesday afternoon. Investors will be looking for inflation relief among efforts to address the rising cost of living for Canadians.
“Climate policy, and more specifically, Canada’s response to the massive U.S. Inflation Reduction Act, will headline the budget,” Alvin Tan, Asia FX strategist with RBC, said.
“Some targeted relief to help more vulnerable groups cope with higher living costs is also expected, but plans to return the budget to balance remain at best aspirational.”
Later in the week, investors will get a look at the health of the Canadian economy at the start of the year when Statistics Canada releases its report on January GDP on Friday. Early estimates suggest GDP grew 0.3 per cent for the month.
Canadian companies reporting results include Dollarama on Wednesday and BlackBerry on Thursday.
The latest deadline to close Rogers Communications’ $20-billion deal to buy Shaw Communications expires at the end of the week. The companies are awaiting federal approval for the acquisition.
Overseas, the pan-European STOXX 600 was up 1.21 per cent by midday. Britain’s FTSE 100 advanced 0.95 per cent. Germany’s DAX and France’s CAC 40 were up 1.29 per cent and 1.06 per cent, respectively.
In Asia, Japan’s Nikkei finished 0.33-per-cent higher. Hong Kong’s Hang Seng fell 1.75 per cent.
Commodities
Crude prices advanced as developments in the banking sector helped ease jitters in broader markets.
The day range on Brent was US$74.80 to US$75.96 in the early premarket period. The range on West Texas Intermediate was US$69.13 to US$70.24.
Brent added about 2.8 per cent last week while WTI rose more than 3 per cent.
Sentiment drew some support from new that First Citizens would buy a big chunk of failed Silicon Valley Bank, helping ease concerns about the state of the global banking sector.
Prices also saw some upward pressure from rising geopolitical tensions in Europe amid Russian President Vladimir Putin’s plans to place tactical nuclear weapons in Belarus.
Reuters reports that the move is one of Russia’s most pronounced nuclear signals yet and a warning to NATO over its military support for Ukraine, which has called for a meeting of the U.N. Security Council in response. NATO slammed Putin for his “dangerous and irresponsible” nuclear rhetoric.
In other commodities, gold prices fell for a second session as the U.S. dollar held relatively steady.
Spot gold was down 0.5 per cent at US$1,967.86 per ounce by early Monday morning. U.S. gold futures slipped 0.8 per cent to US$1,968.90.
Currencies
The Canadian dollar was up modestly while its U.S. counterpart held recent gains against a group of world currencies.
The day range on the loonie was 72.75 US cents to 72.90 US cents early Monday morning.
There were no major Canadian economic releases due Monday.
On world markets, the dollar index, which measures the currency against six rivals, rose 0.06 per cent at 103.05, after advancing 0.5 per cent on Friday as investors sought safer holdings amid concerns about the health of the world’s banking sector.
The euro was up 0.08 per cent to US$1.0771, after falling 0.6 per cent on Friday, according to figures from Reuters.
Britain’s pound was at US$1.2260, up 0.25 per cent, after falling 0.5 per cent on Friday. The Australian dollar rose 0.14 per cent to US$0.6652. The New Zealand dollar was up 0.02 per cent at US$0.6202.
More company news
The Globe’s James Bradshaw reports Onex Corp. is offering to shorten a sunset clause that would keep founder Gerry Schwartz in control of the company to three years in a bid to win support from shareholders over the founder’s plan to step down as CEO. Mr. Schwartz, 80, is chairman and chief executive officer and also controls the $50-billion private equity and asset management company through multiple voting shares. He plans to step aside this spring, with president Bobby Le Blanc taking over as CEO.
Australia’s Origin Energy Ltd on Monday agreed a A$15.35 billion (US$10.21-billion) takeover offer from a consortium led by Canada’s Brookfield, nearing the conclusion of one of the biggest private equity-backed buyouts in the country announced last year. Once the deal is finalized, Origin will be broken up into two businesses – Energy Markets business to be acquired by Brookfield; while MidOcean Energy, the other consortium partner, would take control of Origin’s integrated gas business. –Reuters
Toronto-based Li-Cycle Holdings Corp said on Monday it will build a French facility to break down batteries from forklift manufacturer The Kion Group, marking the latest expansion by the rapidly growing recycling company. The French facility, which is expected to open in 2024 and complement similar sites under development in Germany and Norway, will break down lithium-ion batteries that power Kion’s forklifts and other heavy machinery, giving Li-Cycle a fresh source of batteries to recycle beyond the consumer automobile market. –Reuters
Economic news
Germany business climate
With Reuters and The Canadian Press
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