Neptune Wellness Solutions Inc. (NASDAQ:NEPT) has left the cannabis industry and the relief from that decision was evident in the company’s recent earnings transcript. Chief Financial Officer Raymond Silcock said, “The cannabis business represented an untenable regulatory environment that was built on the expectation of deregulation. And by divesting this business, we have removed some of the obstacles in our path to profitability.” Neptune sold its cannabis business for C$5.15 million.
Instead of cannabis, the company is focusing on Sprout, its leading organic children’s food and snack brand. The company noted that Sprout has a successful partnership with Walmart with the sell-through of the half-pallet seasonal display reaching 75% in eight weeks. Sprout is also continuing its successful expansion into Canadian retailers, recently launching into Loblaws, the largest grocer in Canada.
CEO Michale Cammarata stated, “Operating a business with such a highly controlled substance was prohibitively expensive from an administrative standpoint, and we are already seeing the benefits from this decision. The sale included the cannabis plant in Sherbrooke, Quebec, and the cannabis brands, allowing us to gain significant cost savings and operational streamlining from redirected resources towards a simplified CPG forward corporate structure.”
Like many in the cannabis industry, Neptune noticed that as soon as it left cannabis doors began to open. Silcock said, “By divesting the cannabis assets, we have also been able to build better relationships with investors, other corporations, and banks, many of whom have restrictions against working with companies that own and/or operate cannabis businesses. This has already proved fruitful. We were able to close on a debt financing deal of $4 million and up to $5 million accounts receivable factoring facility in Sprouts and equity financing amounting to approximately $6 million.”
Neptune did acknowledge that its sales had fallen as a result of divesting the cannabis business. However, when the company backed out of the cannabis portion of the business, sales had actually increased by 8%.