After the market closed on Tuesday, Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced that it was undertaking a series of initiatives to reduce costs and drive efficiency in order to accelerate its path to profitability.
Canopy Growth management said it expects to generate a cost of goods sold COGS savings of $30 – $50 million and reduce SG&A expenses by $70 – $100 million within 12 – 18 months. These savings are incremental to the previously announced cost savings of $150–$200 million, of which the majority have already been achieved. As a result of these strategic changes, management said it expects charges between $250 – $300 million in the fourth quarter of FY2022, the majority of which will be non-cash and relate to the write-down of excess inventory balances as well as “property, plant, and equipment” impairments. Further, the company said it expects to incur between $100 – $250 million in non-cash impairment charges in Q4 FY2022, largely driven by goodwill and intangible asset impairments.
The company said it was going to be laying off employees as well.
“To realize profitability and power growth, we are taking critical actions to further evolve Canopy Growth into an agile organization with a clear focus on the areas where we have the greatest potential of success,” said David Klein, Canopy Growth Chief Executive Officer. “These necessary changes are being implemented to ensure the size and scale of our operations reflect current market realities and will support the long-term sustainability of our company.”
The changes were listed as follows:
- Reducing cost of goods sold (“COGS”) in the Company’s Canadian cannabis business by lowering per-gram cultivation costs through increased cultivation-related efficiencies and facility improvements;
- Implementing a flexible manufacturing platform inclusive of contract manufacturing for certain product formats;
- Rightsizing indirect costs and generating efficiencies across the company’s supply chain and procurement;
- Aligning selling, general and administrative costs (“SG&A”) with short-term business expectations by reducing third-party professional fees and office costs; and
- Further streamlining the organization to drive process-related efficiencies.