Last month, Canopy Growth (NYSE:CGC)(TSE:WEED) announced that it will close two cultivation facilities located in British Columbia and the yet-to-open greenhouse facility in Ontario. On Thursday, the company announced another set of global operational changes to optimize its production, improve efficiency, and better align its supply with the demand.
Canopy Growth has transferred the ownership of its operations in South Africa and Lesotho. As a result, the company has exited its Africa operations. With the decline in cannabis demand, the company plans to shut its indoor facility in Yorkton, Canada. In Latin America, Canopy Growth is moving towards an asset-light model.
The company will close its cultivation facility in Colombia and work on sourcing raw material from local suppliers. Meanwhile, Procaps will provide formulation and encapsulation activities according to the agreement between the two companies. Canopy Growth hopes that these initiatives will help position Columbia as its production hub for LATAM. The company also announced that it will close its hemp cultivation in Springfield, New York. The company blamed the decline in hemp demand in the US for halting its farming operations.
Canopy Growth to pre-tax charges in Q4
With the operational changes that Canopy Growth announced yesterday and last month, it expects to incur pre-tax charges of approximately 700 million–800 million Canadian dollars in the fourth quarter, which ended on March 31. Meanwhile, yesterday’s changes have made 85 full-time positions redundant.
In the press release, Canopy Growth CEO David Klein said, “I believe the changes outlined today are an important step in our continuing efforts to focus the Company’s priorities, and will result in a healthier, stronger organization that will continue to be an innovator and leader in this industry. I want to sincerely thank the members of the teams affected by these decisions for their contributions in helping build Canopy Growth.”
On the operational changes, Vivien Azer of Cowen said, “We believe that Klein has strong insights into where to trim excess fat in the organization given his time on Canopy’s board of directors and as chairman, having already proven in prior roles to be a seasoned executive, and that he is well equipped to take this kind of dramatic/decisive action,” as reported by MarketWatch. Azer has given a “buy” equivalent rating for Canopy Growth. Meanwhile, she said that Canopy Growth hasn’t disclosed the cost-savings from these restructurings.
Yesterday, Canopy Growth closed the day 2.2% lower. Weakness in the cannabis sector led to a fall in the company’s stock price. Meanwhile, the company has lost 25.3% of its stock value YTD (year-to-date). Despite the fall, the company has outperformed its peers and cannabis ETFs. During the same period, OrganiGram (NASDAQ:OGI) and Aphria (NYSE:APHA) have fallen by 33.5% and 25.8%, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 35.0% YTD.
Overall, I’m bullish on Canopy Growth. The company has already introduced its Cannabis 2.0 products in the Canadian market. While many other cannabis companies struggle to raise capital, Canopy Growth had 2.3 billion Canadian dollars of cash and cash equivalents at the end of the third quarter of fiscal 2020. So, I think that investors should accumulate the stock on dips.