Cannabis Weekly Round-Up: Canopy Cuts, Quarterly Results Hit Market

Cannabis Investing News
Cannabis Investing

Canopy Growth made major organizational changes this week; meanwhile, players like Aphria, Valens and Organigram released quarterly results.

COVID-19 continues to affect the cannabis space, but this past week was less about the virus and more about the activities of major players in the industry.  

One key company announced massive organizational changes, while several others shared their latest quarterly results — both positive and negative.

Read on for a closer look at some of the biggest cannabis news over the last five days.

Canopy Growth reins in global operations

Marijuana company Canopy Growth (TSX:WEED,NYSE:CGC) made waves on Thursday (April 16), when it announced a major strategic shift that will impact its operations around the world.

The company, which became North America’s first publicly traded cannabis company in 2014, said it is halting various types of work across three continents in a bid to “optimize production, better align supply and demand, and improve efficiencies in its global operations.”

Canopy said it has exited its operations in South Africa and Lesotho, and will cease operations at its Colombia-based cultivation facility. It will also shut down its indoor facility in Yorkton, Saskatchewan, and will end farming in Springfield, New York.

CEO David Klein said the move, which will result in the elimination of 85 positions, came as part of a strategic review that he embarked on after taking the helm at Canopy in January.

“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,” he said.

Just over a month ago, Canopy also closed two greenhouses in Aldergrove and Delta, BC, laying off 500 employees in the process. At the time, the company said it expected to incur pre-tax charges of about C$700 to C$800 million in the quarter ended on March 31, 2020; it reiterated that forecast on Thursday.

While market watchers have reacted fairly positively to the move, they have acknowledged that it is in sharp contrast to the accretive strategy taken by Bruce Linton, co-founder and former CEO of Canopy.

“This is all probably a good thing for the company, but it shines a light on just how much they might have overshot with the acquisitions,” said Matt Bottomley, a cannabis analyst at Canaccord Genuity. “When you restructure operations at such a huge impairment, it just goes to show how much of Canopy’s money was poorly allocated to begin with.”

Aphria and Valens report profitable quarters

As mentioned, quarterly results were top of mind this week in the cannabis sector, and as BNN Bloomberg points out, two key players bucked the wider marijuana market trend by recording profits.

Cannabis producer Aphria (TSX:APHA,NYSE:APHA) reported net revenue of $144.4 million for the period ended February 29, an increase of 96 percent year-on-year and 20 percent from the previous quarter. Net cannabis revenue was $55.6 million; the company also has a pharmaceutical distribution arm in Europe that accounted for the rest of its sales.

Aphria’s net income was $5.7 million, up from losses in the previous quarter and year-ago period.

Also this week, Aphria CEO Irwin Simon gained attention in the media for suggesting that cannabis companies need to start selling directly to consumers — currently they are allowed to sell straight to medical users, but not recreational users.

“I want to become what Amazon (NASDAQ:AMZN) is to the grocery business,” he said in an interview.

His comments come at a time when brick-and-mortar cannabis stores across North America are facing varying rules about whether they can stay open during the coronavirus outbreak. Simon also said that allowing companies to ship directly to recreational consumers would have benefits such as keeping prices low and allowing for better black market competition.

Meanwhile, The Valens Company (TSX:VLNS,OTCQX:VLNCF) released its latest quarterly results on Tuesday (April 14), highlighting that its revenue came in at $32 million, up significantly from $2.2 million in the year-ago period. Its net income came in at $2.5 million, which is down from the previous two quarters, but up from a net loss of $6.6 million a year ago.

Valens, a cannabis extraction company, was also in the news this week for uplisting from the TSXV to TSX.

Organigram disappoints with Cannabis 2.0 results

On a less positive note, Organigram Holdings (TSX:OGI,NASDAQ:OGI) shared its latest quarterly results on Tuesday, reporting revenue of $23.2 million, down from both a year ago and the previous quarter. Cannabis 2.0 products made up 13 percent of its net revenue.

The company also reported a year-on-year cost of sales increase of about $5 million, which it said was partially due to inefficiencies resulting from the launch of vapes and chocolates.

Before the results came out, Raymond James said in a note that they would be important for both Organigram and the cannabis sector as a whole because they would offer a first look at Cannabis 2.0 revenues from a “bellwether licensed producer.” 

Commenting after their release, analysts at CIBC Capital Markets said that while they believe Organigram is backed by one of the strongest teams in the industry, the company is still facing challenges — those include emerging low-cost competitors, Cannabis 2.0 startup costs and the overall COVID-19 situation.

“Whereas OGI was viewed as one of the few clear price leaders a year ago, competitors have flooded the market, particularly in lower-priced dried flower and pre-rolls, and we believe this has somewhat reduced OGI’s early-mover advantage,” they said. CIBC Capital Markets has downgraded Organigram to a “neutral” rating with a price target of $2.75.

Last week, Organigram temporarily laid off 400 employees, or about 45 percent of its workforce.

Cannabis company news

  • Aurora Cannabis (TSX:ACB,NYSE:ACB) followed up on a previously announced “business transformation plan” on Monday (April 13), saying that its board will allow it to move forward with a 12-for-one consolidation of its common shares. The consolidation will be effective in mid-May, and the company said that will allow it to remain in compliance with NYSE listing requirements.
  • CannTrust Holdings (TSX:TRST,NYSE:CTST) said on Tuesday that it will be delisted from the TSX on May 6. The move was not a surprise for the company, which said it expected to be delisted from both the TSX and NYSE after it received creditor protection in late March. The NYSE has already started the delisting process.
  • HEXO (TSX:HEXO,NYSE:HEXO) closed a C$46 million underwritten private offering on Monday, saying it will use the proceeds for working capital and other corporate purposes. Also this week, HEXO formed a joint venture with Molson Coors Beverage Company (TSX:TPX,NYSE:TAP); they will explore opportunities for non-alcohol hemp-derived cannabidiol beverages in Colorado.
  • After being granted creditor protection and agreeing to restructure, James E. Wagner Cultivation (OTCQX:JWCAF,NEX:JWCA.H) said it has received approval to start the sales and solicitation process. The company aims to sell all of its assets for at least $11.95 million, but will also consider offers for portions of its assets.

Don’t forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Valens Company is a client of the Investing News Network. This article is not paid-for content.

The Conversation (0)