Canopy Growth exits cannabis cultivation on three continents in major international pullback

Canopy Growth is ceasing more cannabis cultivation in Africa, Canada, Colombia and the United States in a bid to “improve efficiencies” in its global operations, the once high-flying marijuana giant said Thursday.

The Smiths Falls, Ontario, company also said it is eliminating 85 full-time positions.

Almost half the workforce reduction is coming from the company’s Colombian operations, Marijuana Business Daily has confirmed.

The downsizing does not affect Europe, Christian Goertz, Canopy’s director of corporate communications in Europe, told MJBizDaily.

Canopy’s international pullback comes after Canadian producers raked up collective net losses exceeding 6 billion Canadian dollars ($4.5 billion) in 2019, the first calendar year recreational cannabis products were allowed to be sold in Canada.

Many companies, including Canopy and competitor Aurora Cannabis, invested heavily in far-flung areas of the world, where actual medical marijuana markets remain years – maybe decades – away.

“A closer look at each country shows that one of the few commonalities across the continent is that most countries that legalized medical marijuana still have nonexistent or dysfunctional markets – sometimes even years after their cannabis laws were approved,” according to Marijuana Business Daily’s Latin America report, published in 2019.

“Restrictive access schemes, lack of health insurance coverage and widespread home growing moderate any initial excitement about the commercial opportunities in these markets.”

Canopy expects to take a financial hit of up to CA$800 million in the fourth quarter, according to a news release.

Africa

Canopy Growth said it entered into an agreement to exit its operations in South Africa and Lesotho.

The company expects to transfer ownership of all its African operations to a local company in the coming weeks.

Financial terms were not disclosed.

Canopy entered the African market in May 2018 with the acquisition of Daddy Cann Lesotho, spending almost CA$30 million.

Canada

As part of the downsizing, Canopy is closing another cultivation facility in Canada.

Its indoor facility in Yorkton, Saskatchewan, will be shut down “to further align production in Canada with market conditions.”

Canopy acquired rTrees Producers Limited in April 2017 and rebranded it as Tweed Grasslands.

Total financial consideration of that acquisition was CA$31 million, according to a regulatory filing.

The rTrees’ facility consisted of 90,000 square feet in Yorkton at the time of the transaction, with the capacity slated to expand to more than 300,000 square  feet.

Colombia

Canopy also said it will cease cultivation operations at its facility in Colombia and move to an “asset light model.”

Through Canopy LATAM, the Canadian firm acquired Colombian Cannabis S.A.S. in July 2018 and renamed it Spectrum Cannabis Colombia S.A.S.

The maximum value of that transaction was CA$61.3 million, pending four milestones. It is not clear whether the milestones were achieved.

Niklaus Schwenker, director of communications of Canopy Growth Latin America, told Marijuana Business Daily the closure “was not an easy decision.

“The change will impact less than 40 of our team members,” he added, “and we are working with each employee to build a plan for how to manage this transition respecting them, their service and this difficult global moment.”

Canopy expects to continue operating in Colombia through an ongoing agreement with Procaps, sourcing existing raw material supply from existing cultivators.

Procaps produces over-the-counter medicines and nutritional supplements for a number of international companies, exporting to dozens of international markets.

“Leveraging added Colombia-based raw material, we are continuing our contribution to the development of Colombia as a LATAM production hub and supporting the advancement of Colombia’s medical cannabis industry,” Schwenker said.

Canopy said Colombia will remain its production hub.

This is not the first time Canopy has downsized in Latin America.

In November 2019, MJBizDaily reported that about 15% of the workforce in the region had been laid off.

United States

Canopy’s cuts include ceasing its farming operations in Springfield, New York, “due to an abundance of hemp produced in the 2019 growing season.”

“The company will continue using this supply to produce hemp-derived CBD products for the U.S. market,” Canopy said in its release.

New Canopy CEO David Klein indicated the cuts announced Thursday are part of his strategic plan.

“When I arrived at Canopy Growth in January, I committed to conducting a strategic review in order to lower our cost structure and reduce our cash burn,” he said in a statement.

“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.”

Shift to outdoor?

For Jefferies equity analyst Owen Bennett, the closure of another indoor Canadian cultivation facility “brings into focus the debate around cultivation mix going forward.”

“If outdoor grow is successful this season and material harvests are realized, it raises a number of considerations including consumers’ attitudes to quality, further pressures to oversupply – if retail stores are not increased – and the likelihood of even greater price competition across the space like we are seeing already,” Bennett wrote in a note to investors.

After massively overinvesting in greenhouse and indoor cannabis canopy since 2017, producers have shuttered facilities across the country. (By late 2017, Canadian marijuana producers had bankrolled enough capacity to meet demand for recreational cannabis products.)

Canopy’s decision to shutter the Yorkton facility comes on the heels of its March closure of two greenhouses in British Columbia.

At the time, Canopy said it operates an outdoor production site “to allow for more cost-effective cultivation, which will play an important role in meeting demand on certain products that rely on cannabis extracts.”

MJBizDaily recently reported that approvals for outdoor cannabis cultivation have increased by more than 25% in the past few months.

Canopy trades on the New York Stock Exchange as CGC and the Toronto Stock Exchange as WEED.

Alfredo Pascual can be reached at [email protected]

2 comments on “Canopy Growth exits cannabis cultivation on three continents in major international pullback
  1. Nicholas Born on

    the author makes a point about these two companies spreading out into countries that are years away from having the proper framework in place to provide medical or recreational cannabis, which is true but without people pushing for that framework the process will be much slower. It’s easier to go to the government once you’ve got everything ready to go and they just need to sign off. On the other hand these two companies have been spending investor money like crazy without the sales to back it up. I think keep it simple and grow your Canadian business first and foremost, then the international market will open up.

    Reply
  2. Susan on

    it seems to me that the cannabis industry is doing just fine… it would be these eager companies who’s eyes are too big for thier stomachs so to speak, that put out expectations of large perportions…. what i mean by that is the hunger (demand) for the medical product is there, but there seems to be a hurdle finding the demand. People do want this product, all over the world,. the timing is off around certain areas and it is a matter of playing catch up in those certain areas.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *