BioSteel filing immediately eliminates significant cash burn for Canopy Growth and provides for an orderly realization of value of BioSteel's assets through a sale process
As the senior secured lender to BioSteel, Canopy Growth expects to recover proceeds from the anticipated sale process
Management reaffirms its expectation to achieve positive Adjusted EBITDA in all remaining business units exiting FY2024, as the Company focuses on driving growth in its Canadian and U.S. cannabis businesses to position itself as an industry leader in North America
Canopy Growth Corporation ("Canopy Growth" or the "Company") (TSX: WEED) (NASDAQ: CGC) today announced that it has ceased funding BioSteel Sports Nutrition Inc. ("BioSteel") and that BioSteel has commenced proceedings under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) ("CCAA Court") and will seek recognition of that proceeding under Chapter 15 of the United States Bankruptcy Code to give full force and effect to the orders made in the CCAA proceeding in the United States, including a stay of proceedings.
As part of its efforts to simplify its business and reduce cash burn, Canopy Growth previously announced that it was reviewing strategic options for the Company's BioSteel business unit, including a potential sale of the business unit. BioSteel's business was a significant drag on Canopy Growth's profitability and cash flow, representing approximately 60% of the Company's Q1 FY2024 Adjusted EBITDA loss. The decision by BioSteel to seek creditor protection means that Canopy Growth will limit the further funding obligations in respect of the BioSteel business unit, which is consistent with Canopy Growth's transformation to a simplified, asset-light operating model and focus on its core cannabis operations.
Canopy Growth's financial position is expected to be further strengthened through the immediate removal of the cash expenditures associated with funding the BioSteel business unit and the potential cash proceeds from the orderly sale of BioSteel's assets. Further, the Company anticipates the removal of the previously identified material weakness related to the BioSteel business segment upon disposition. In addition, with BioSteel's operating loss and cash burn eliminated, Canopy Growth reiterates its expectation to achieve positive Adjusted EBITDA across its remaining business units exiting FY2024.
"Canopy Growth has marked yet another major milestone in our transformation plan, as while BioSteel's business has shown significant year-over-year revenue growth, and we believe the brand remains an attractive asset, it does not align with Canopy Growth's cannabis focused asset-light strategy. We have repeatedly demonstrated that we will take decisive action to enhance our profitability and ensure we are focused and positioned to be a leader in the North American cannabis sector," said David Klein, Chief Executive Officer.
Recent Transformation Plan Highlights
Since July 1, 2023, reduction of the Company's overall debt by approximately CAD $349 million, with further reductions totalling approximately CAD $95 million expected over the next two quarters1.
Agreement to sell Hershey Drive facility for CAD $53 million. Upon the completion of the sale, Canopy Growth will have sold a total of seven properties for an aggregate gross amount of approximately CAD $155 million since April 1, 2023.
Achieved cost reduction of CAD $47 million in Q1 FY2024, bringing total cost reductions to CAD $172 million since the beginning of FY2023.
Management continues to expect restructuring initiatives announced in FY2023 to deliver combined Selling, General & Administrative Expense and Cost of Goods Sold reduction of CAD $240 million to CAD $310 million by the end of FY2024.
U.S. THC companies that are expected to be acquired by Canopy USA, LLC ("Canopy USA") continue to demonstrate momentum, strengthening and expanding their businesses and Canopy Growth continues to work with regulators to advance its novel structure.
BioSteel has obtained an initial order from the CCAA Court which provides for, among other things: (i) a stay of proceedings in favor of BioSteel and its two U.S. affiliates, BioSteel Sports Nutrition USA LLC and BioSteel Manufacturing LLC; and (ii) the appointment of KSV Restructuring Inc. as monitor of BioSteel.
The CCAA process will allow the BioSteel business to maximize the value of its assets through a court supervised sales process. Canopy Growth remains BioSteel Canada's largest creditor and shareholder and anticipates receiving its proportionate share of any recoveries in the CCAA process.
__1 This number assumes that the convertible debentures issued on July 14, 2023 with an aggregate principal amount of approximately $40.4MM are settled by the Company in common shares, which settlement is only possible in the event that shareholders of the Company approve such issuance at a meeting of shareholders on September 25, 2023.
Adjusted EBITDA is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; restructuring costs recorded in cost of goods sold; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition-related costs. Asset impairments related to periodic changes to the Company's supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities.
About Canopy Growth
Canopy Growth is a leading North American cannabis and consumer packaged goods ("CPG") company dedicated to unleashing the power of cannabis to improve lives. Through an unwavering commitment to our consumers, Canopy Growth delivers innovative products with a focus on premium and mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space. Canopy Growth's CPG portfolio features targeted 24-hour skincare and wellness solutions from This Works, gourmet wellness products by Martha Stewart CBD, and category defining vaporizer technology made in Germany by Storz & Bickel.
Canopy Growth has also established a comprehensive ecosystem to realize the opportunities presented by the U.S. THC market through its rights to Acreage Holdings, Inc., a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast, as well as Wana Brands, a leading cannabis edible brand in North America, and Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.
Beyond our world-class products, Canopy Growth is leading the industry forward through a commitment to social equity, responsible use, and community reinvestment—pioneering a future where cannabis is understood and welcomed for its potential to help achieve greater wellbeing and life enhancement.
For more information visit www.canopygrowth.com
Source: Canopy Growth
Does your company have business or financial objectives?
If your company has business or financial objectives, check out the advisory services for growing global technology companies provided by FC Global Strategies.
Our calendar link for scheduling a call.
Jeffrey Friedland - Based in the US
(North America and Global)
+1 646 450 8909 ,
David Krutonog - Based in Israel
(Eastern Europe, Middle-East and North Africa
+972 50 974 3429
Claudio Hebling - Based in Brazil
+55 19 99377 7482
Vincent Paul Joseph - Based in India
(South Asia, India, and Sri Lanka)
+91 962 620 9090