Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) said that it plans to close two facilities in Aldergrove and Delta, British Columbia, which will result in the loss of approximately 500 jobs. Also, the company said it no longer plans to bring the third greenhouse online in Niagara-on-the-Lake, Ontario.
The bad news continued for the company as Canopy also said it would take estimated pre-tax charges of approximately $700-800 million in the quarter ending March 31, 2020, as a result of the announcement and additional changes related to its organizational and strategic review.
“When I joined Canopy Growth earlier this year, I committed to focusing the business and aligning its resources to meet the needs of our consumers,” shared Canopy Growth CEO, David Klein. “Today’s decision moves us in this direction, and although the decision to close these facilities was not taken lightly, we know this is a necessary step to ensure that we maintain our leadership position for the long-term. Along with the rest of the management team, I want to sincerely thank the members of the team affected by this decision for their work and commitment to building Canopy Growth.
The company said in a statement that the greenhouses in B.C. account for approximately 3 million square feet of licensed production space and were put into commission, beginning in February 2018, after a period of phased retrofitting to help Canopy Growth scale up to supply the new Canadian adult-use market. Nearly 17 months after the creation of the legal adult-use market, the Canadian recreational market has developed slower than anticipated, creating working capital and profitability challenges across the industry.
Additionally, federal regulations permitting outdoor cultivation were introduced after the company made significant investments in greenhouse production. Canopy said it now operates an outdoor production site to allow for more cost-effective cultivation, which will play an important role in meeting demand on certain products that rely on cannabis extracts.
At the beginning of cannabis legalization in the country, companies were one-upping each other as to how much indoor growing space they could build. Seemingly with no regard to how much could be consumed, grow facilities were created at great expense using the latest lighting equipment and growing software. No doubt, the second-hand market will now be flooded with bargain rate used equipment.