Canopy shakes up board, reports CA$216 million loss on lower cannabis sales

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Canadian cannabis producer Canopy Growth on Friday reported a shake-up to its board of directors, a lower third-quarter loss and a “singular focus” on marijuana.

Canopy’s net loss in the third fiscal quarter improved to 216.7 million Canadian dollars ($160 million), according to a U.S. Securities and Exchange Commission filing.

The board shake-up is related to the company’s advancement of its Canopy USA strategy, according to a news release.

Out is Robert L. Hanson, who resigned from Canopy’s board effective Feb. 6.

Hanson was replaced by two new board members – Willy Kruh and Luc Mongeau – effective Feb. 7.

On his LinkedIn page, Kruh is listed as the current CEO of PlantExt, a pharmaceutical cannabis formulation company.

It’s unclear if he still retains that position. He formerly served as the global chair for KPMG’s consumer-markets practice.

Canopy said Mongeau has decades of experience leading CPG companies, including Mars, Mars Petcare and Weston Foods. Mongeau’s LinkedIn profile lists him as the present CEO of eSolutions Furniture.

The Smiths Falls, Ontario-based company said the shake-up was also part of the expected departure of Constellation Brands-appointed board members after the creation of exchangeable shares to facilitate its U.S. strategy.

Canopy said it expects to file its definitive proxy statement with the SEC on Feb. 13 and to host a shareholder vote April 12.

During that vote, shareholders will be asked to approve a range of issues to advance the strategy, including creating the new class of nonvoting, non-participating exchangeable shares.

“This is the dawn of a new era at Canopy Growth,” CEO David Klein said in a statement. “We’re singularly focused on cannabis and demonstrating growth across all of our business units.

“With our Canopy USA strategy now moving forward, we expect to be the first and only U.S. listed company offering shareholders a unique opportunity to gain exposure to the fastest growing cannabis market in the world.”

In the third quarter, Canopy’s net revenue declined to CA$78.5 million, down from CA$84.9 million in the same period a year earlier.

The company’s Canadian cannabis revenue took the biggest hit, falling 16.3% year-over-year to CA$39 million in the October-December quarter.

However, Canadian medical cannabis sales improved to CA$15.6 million in the quarter.

By segment, Canopy’s net revenue in the quarter was:

  • CA$10.5 million from rest-of-world cannabis sales, an 80% increase over the same quarter in the previous year.
  • CA$18.5 million for Storz & Bickel’s high-end vaporizer products, down from CA$20.2 million a year earlier.
  • CA$8.2 million from its former This Works subsidiary, which sold beauty, wellness and sleep products.

By geography, Canopy’s net revenue in the third quarter (compared to last year’s third quarter) was:

  • CA$41 million in Canada, down from CA$50.3 million.
  • CA$13.5 million in Germany, up from CA$12.7 million.
  • CA$13.7 million in the United States, up from CA$12.3 million.

In December, Canopy completed the sale of the This Works unit to United Kingdom-based Inspirit Capital for 9.3 million pounds (15.9 million Canadian dollars).

In the quarter, Canopy also said it achieved consolidated gross margins of 36%, with Canada cannabis gross margins increasing to 28%.

But free cash flow from continuing operations was negative CA$34 million.

Canopy reaffirmed its expectation to be positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in all of business units “exiting fiscal 2024.”

Chief Financial Officer Judy Hong elaborated on the conference call that “our goal is to be profitable at the consolidated level.”

“We feel we are on track to achieve profitability at the business unit level exiting 2024,” she continued.

“Does that mean the full quarter is profitable? Is it consolidated adjusted EBITDA profitable? There’s still some variables we need to see how that plays out.”

In January, Israel initiated an ‘anti-dumping’ probe into Canadian cannabis companies.

Canopy Growth was one of the 10 companies named in the investigation.

Canopy did not address the issue on the conference call or in its SEC filing.

In a filing, the company said its core operations take place in Canada, the United States, Australia, Czech Republic, Germany and Poland as well as “41 priority growth markets internationally.”

On the call with analysts, Canopy’s CEO said he’ll be very careful with any capital deployed in international markets going forward, “given our experience of being the first one into the market.”

“What we will do is lean into the areas where we are operating, and operating well, like Germany, Australia, Poland, Czech Republic, by bringing in really strong product offerings to market and a focused team,” Klein said.

“We’ll remain asset light, most likely, in the international markets and make sure we can grow in Canada and focus on the U.S.”

The CEO also addressed market expectations that the U.S. government would move marijuana from Schedule 1 to Schedule 3 of the Controlled Substances Act.

“Moving cannabis to Schedule 3 would be a significant boost for the U.S. assets held by Canopy USA and for Canopy Growth,” he said.

“Through the removal of Sec. 280E, we expect value appreciation across our U.S. assets, which would see a significant financial boost through reduced corporate income taxes, improved cash flows and strengthened balance sheets.

Shares of Canopy Growth trade as WEED on the Toronto Stock Exchange and CGC on the Nasdaq.

Matt Lamers can be reached at