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Canopy Growth plans to cut 220 jobs and shut down five marijuana growing operations.
Dreamstime Canopy Growth said Wednesday it plans to cut 220 jobs and shut down five marijuana growing operations.
The company (ticker: CGC) said it would cease operations at four indoor sites: in Newfoundland and Labrador, New Brunswick, Alberta, and Ontario. It will also close an outdoor growing operation in Saskatchewan. Canopy CEO David Klein said the actions will help toward cutting costs and speed up its road to profits.
“We are confident that our remaining sites will be able to produce the quantity and quality of cannabis required to meet current and future demand,” Klein said. “This was a difficult decision but I believe it is the right one. I want to thank all of the employees impacted by this decision for their efforts in helping build Canopy Growth.”
In the past year, cannabis companies have been forced to cut costs and scale back operations amid disappointing sales growth and longer than expected paths to profitability.
Jefferies analyst Owen Bennett thinks Canopy’s move is a positive one. He wrote in a note on Wednesday that the cuts will improve gross margins, help Canopy lower costs and reduce cash burn, leaving more money to invest in the U.S. He has a Neutral rating on the stock with a $21.10 price target.
Canopy said in March it would cut 500 jobs, close two facilities, and cancel plans for another location. The stock has risen 29% in 2020, though it is well off its highs set in 2018 and 2019. This fall brought some positive sentiment for marijuana stocks, including 2020 election results that will expand cannabis sales in a handful of states.
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Canadian growers can legally list on senior U.S. exchanges because they don’t operate in the U.S., where the drug is illegal at the federal level. Companies operating in the U.S. instead list on the smaller Canadian Securities Exchange and over-the-counter in the U.S. They largely sacrifice access to investment from major U.S. public firms and national banking services for the right to sell cannabis in states that have legalized the drug.
Canopy, though, has an inside track because of its 2019 deal with U.S. grower Acreage Holdings. That agreement includes a merger that will be triggered when legislative changes allow Canopy to enter the larger U.S. market. Such U.S. growers are working to build a competitive moat, while other Canada-based firms bide their time.
Canadian firms can sell products with cannabidiol, or CBD, which was made legal in late 2018. But the market for CBD hasn’t materialized at the levels some growers had hoped.
Such hemp products are said to provide calming effects, but lack Tetrahydrocannabinol, or THC, the psychoactive compound that gets users high.
“The big opportunity here is the U.S., with sizable top line potential in U.S. CBD,” Bennett noted. “Establishing market share strength in these early days could be critical to longer term U.S. CBD sustainability.”
Canopy Growth stock fell 5.6% to $27.20, while the S&P 500 index slipped 0.8%.
Write to Connor Smith at connor.smith@barrons.com