David George-Cosh

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Canopy Growth Corp., the most valuable cannabis company in the world, will continue to refocus its business amid another quarter of steep losses, missed revenue expectations and sizable impairment charges as it looks to rebuild consumer interest, the company's executives said Friday. 

"As we all know, Canopy grew quickly to achieve a leading position in a rapidly expanding industry,” said David Klein, chief executive officer of Canopy Growth, during an analyst call. "In that time period, being first was clearly rewarded. But being first isn't a sustainable strategy or a point of differentiation, nor is it necessarily tied to creating value."

The Smiths Falls, Ont.-based company said its fourth-quarter revenue was $107.9 million, down 13 per cent from the prior quarter, as its Canadian recreational cannabis sales plunged 28 per cent. It also reported a $102-million adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss. Canopy's net loss came to $1.3 billion, including about $843 million in restructuring and impairment charges.

Analysts, on average, expected Canopy to post a net loss of about $222 million on $128.9 million in fourth-quarter revenue.

The company struggled in the Canadian recreational pot market, seeing its market share fall from the low 20-per-cent range to just above 15 per cent, Canopy chief financial officer Mike Lee said during an analyst call Friday. Lee also said the company's "Cannabis 2.0" sales were less than two per cent of its quarterly revenue as the rollout of its infused drinks and vapes were delayed due to quality control issues.

"Despite strong year-over-year growth, we know we missed opportunities along the way as our supply chain grappled with some complex products and productions systems and worked to gear itself against a very dynamic market with shifting demand and evolving consumer preferences," Lee said. "Simply put, we missed opportunities."

Klein noted during the call the next fiscal year will be "transitional" and the company needs more time to update investors on when it plans to become profitable. It withdrew its previous forecast for positive adjusted EBITDA by the fourth quarter of fiscal 2022 and to be fully profitable within the next three to five years.

The company also said it plans to focus its attention on the Canada, U.S. and German recreational and medical cannabis markets, adding it plans to take an "asset-light" approach in those countries.

"We designed a new operating model that will focus on the consumer and will increase our speed and agility as an organization," Klein said. "This is not a quick transition but the beginning of a journey that will put us firmly in the ranks with the top consumer product companies in the world."

Canopy's shares opened 20 per cent lower Friday, erasing nearly all of their gains since March. That increase had been part of a broad rise in cannabis stocks. Investors have warmed up to the sector in the past several weeks amid rising consumption rates during the COVID-19 pandemic.

Still, the quarter will mark the end of a relatively rough period for the pot giant. Klein, who became Canopy's CEO in January, has taken a hands-on approach with a company-wide strategic review in identifying which parts of the business are no longer financially prudent for Canopy. That comes years after its previous management spent millions of dollars expanding the company's operations across five continents and becoming a major global cannabis player.

Since Klein took over the company's top job, he has closed underperforming greenhouses in British Columbia, suspended operations in South America and Africa, curtailed its burgeoning hemp cultivation in New York state, and laid off about 800 staff members. Klein noted in the call that Canopy will place extra emphasis on targeting the value segment in the Canadian recreational market as well as its nascent U.S. CBD business where it aims to be a major player.