Canopy Growth Announces Initiatives to Regain Market Share

In the fourth quarter, Canopy Growth (NYSE:CGC)(TSE:WEED) lost market share due to increased competition in value products. In the fourth quarter, the company’s management announced four initiatives to increase its market share.

  • a focused product portfolio approach
  • expanding its share in the value segment
  • acquiring a significant share in the Cannabis 2.0 segment
  • improving the quality of its products

On Monday, during the investors’ meeting, Canopy Growth’s management provided more light on the four initiatives.

Management stated that 30% of the company’s SKUs (stock-keeping units) accounted for 80% of its recreational shipments in Canada. So, too many low-velocity products were consuming resources and increasing complexities for the supply chain. Management added that Canopy Growth lost around 20 million Canadian dollars in the fourth quarter alone due to product availability issues. The company already completed its SKU rationalization process. Canopy Growth announced that it will reduce its SKUs by 30%. Management hopes that these initiatives will help the company to increase its focus on supplying fast-moving products and reduce its expenses and operational complexities.

Canopy Growth to expand its Cannabis 2.0 offerings

With margins on Cannabis 2.0 products being higher, Canopy Growth has focused on acquiring a significant share in the segment. The company has already launched cannabis-infused beverages, vapes, and chocolates in Canada. Also, the company introduced its cannabis-infused beverages, Tweed Houndstooth & Soda beverage, Bakerstreet & Ginger, Houseplant Grapefruit, and Deep Space, in the market. On Monday, Canopy Growth announced that the products were received well by the customers. The company shipped 530,000 units of the products as of Monday. Canopy Growth has doubled its weekly production to meet the increased demand for these products.

In the vaping segment, Canopy Growth has two platforms—the Tokyo Smoke Luma closed-loop pod-based system and Universal 510 thread cartridges. On Monday, the company announced that consumers’ response has been positive on both of the platforms. Canopy Growth plans to launch additional 510 vape cartridges soon. The company doubled its production of premium chocolates since the demand has been exceeding the supply. Also, the company plans to expand its edibles portfolio by launching gummies by the end of this fiscal year.

Canopy’s initiatives to improve its market share in value offerings

Canopy Growth’s management stated that the value segment’s share in the total cannabis market has increased over the last few quarters to reach 25%. Meanwhile, the company’s share in the segment has declined due to increased competition. So, Canopy Growth announced initiatives, like making price adjustments depending on the markets and focusing on higher-THC level products, to improve its market share. The company plans to launch another brand in the second quarter of this fiscal year to compete in the deep-value segment.

Focus on expanding its CBD offerings in the US

Currently, Canopy Growth estimates the US CBD market to be at $3 billion. Meanwhile, the company projects the segment to grow to $10 billion by the end of 2023. However, the segment is highly fragmented. Canopy Growth has a huge potential to gain market share in the segment. The company entered the segment in December 2019 with the First & Free brand. Meanwhile, through BioSteel, the company launched CBD for its sports product line, which includes protein powder and chewing gum infused with CBD as well as CBD isolate sports hydration mixes. Another subsidiary, This Works has launched CBD skincare products. The company plans to launch Martha Stewart-branded offerings for human consumption soon. Later, the company plans to expand the offerings to pets also.

Canopy Growth looks to cut its expenses

Apart from these growth initiatives, Canopy Growth has focused on improving its profitability. The company wants to lower its SG&A expenses. The company expects the reduced headcount in April and May to save approximately 20 million Canadian dollars per annum. Meanwhile, Canopy Groth announced that the organizational changes are still in progress. The company could see another decline in its SG&A expenses going forward.

Stock performance

So far this year, Canopy Growth has lost 14.0% of its stock value. The lower-than-expected fourth-quarter performance and weakness in the cannabis sector dragged the stock down. Meanwhile, the company has outperformed cannabis ETFs and its peers. The ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 21.1% YTD. Meanwhile, Aurora Cannabis (NYSE:ACB), HEXO (TSE:HEXO), and Aphria have fallen by 44.6%, 52.2%, and 11.2%, respectively.

For more on analysts’ recommendations, read Analysts Are Bearish after Canopy Growth’s Weak Q4 Earnings.