Canopy Buoyant On U.S. Opportunity Post-Rescheduling
June 4, 2024Canada-based Canopy Growth has been a business in transition recently, looking to right-size its portfolio and address key growth areas as it emerges from a long period of restructuring. The company’s executives now believe they’re on a course toward profitability, led by better growth in Canada and international markets, along with emerging opportunities in the U.S.
For its full fiscal year ended in March, Canopy posted sales down 11% to C$297 million ($218m), with adjusted EBITDA registering a loss of C$59 million ($43m), which marked a 72% improvement over the prior year, boosted by revenue gains and cost reductions. Sales growth was positive in the fourth quarter, up 16% when stripping out divested businesses.
“Canopy is a stronger, fully cannabis-focused business that is poised for profitable growth in the year ahead across all of the most exciting global cannabis markets,” CEO David Klein told analysts. “Canopy now has an attractive gross margin profile across all of our businesses … and financial performance that is nearing consolidated adjusted EBITDA profitability, focusing on flower as the central pillar of our business.”
While performance has improved in Canada recently, Canopy is looking to the U.S. for significant growth looking ahead, with the consolidation of brands like Wana and Jetty as well as Acreage Holdings under its Canopy USA offshoot. Both Wana (known for edibles) and Jetty (playing in the vape sector) have been entering new states recently, with “Jetty’s Solventless vapes ranked as the #1 Live Rosin vape nationally in the U.S.,” according to Klein, despite current availability in only four markets.
“The timing for the advancement of our U.S. strategy is also aligning nicely with major strides on the regulatory front, including rescheduling,” Klein added. “We’ve been unequivocal in our support for rescheduling and believe that this change represents a leap forward for the industry. And from a financial perspective, I’d like to emphasize that rescheduling is especially significant as it will provide an immediate and meaningful improvement to the cash flow of all state-legal cannabis businesses, including those within Canopy USA.” That’s because the Justice Department’s move to transfer cannabis from a Schedule I to a Schedule III drug could trigger removal of Section 280E, which has prevented cannabis players from claiming ordinary business tax deductions.
As it continues to ramp up in the U.S., Canopy says it added 2,300 points of distribution in the Canadian adult-use market in the three months through March, including 915 for Tweed flower and 650 for Deep Space beverages. It has also launched new SKUs including Tweed Lemon Meringue Pie flower in large-format 28g packs, and 7Acres Jack Haze pre-rolled joints in a 0.5g x 14 large pack, as well as new offerings in Canada’s medical segment.
“Canopy is entering fiscal ’25 with a strong foundation,” said Klein. “We have a focused business. We’re well-positioned in the geographies and categories of greatest potential, and we’ve built a business that can deliver profitable growth.”—Daniel Marsteller
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