Canopy Growth Archives - Green Market Report

Debra BorchardtNovember 19, 2021
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First it was Slang Worldwide this week that saw the departure of the company’s CEO Chris Driessen, along with Board Chair Peter Miller stepping down and several other board members who left. Today, Canopy Growth Corporation (NASDAQ: CGC) announced that  Executive Vice President and Chief Financial Officer Mike Lee and President and Chief Product Officer Rade Kovacevic would leave the company on December 31, 2021.

New Canopy Executives

The changes are coming shortly after the company blamed the decline in flower sales in the third quarter on an insufficient supply of flower with in-demand attributes, including higher THC, in the premium and mainstream categories as well heightened competition focused on single strain offerings in the value flower category. Canopy said that it managed to keep its number one market share in the premium flower category but conceded that it fell by 310 bps quarter over quarter. The value flower category maintained its number two market share, but that also dropped by 540 bps from the first quarter.

Canopy Growth named Judy Hong as interim Chief Financial Officer and Tara Rozalowsky as interim Chief Product Officer. In addition to serving as members of the company’s Executive Management Committee, both will report directly to CEO David Klein effective immediately. The company said it has initiated an external search for both roles and to support a seamless transition has

“These decisions reflect Management and the Board’s vision for building a best-in-class organization that is well-positioned to deliver long-term growth and shareholder value,” said David Klein, CEO, Canopy Growth. “We appreciate Mike and Rade’s contributions to advancing Canopy Growth to our position as a cannabis industry leader. Judy and Tara are established leaders who have played pivotal roles during their tenure at Canopy Growth. I am confident in their ability to execute against our strategic priorities as we accelerate our path to profitability,” added David Klein, CEO.

Hexo Corp.

HEXO Corp (NASDAQ: HEXO) announced that Sebastien St-Louis has resigned from HEXO’s Board of Directors. The company also announced that it has appointed President and CEO, Scott Cooper, as a Director to replace Sebastien St-Louis, effective yesterday.

“I would like to take this opportunity to thank Sebastien for over eight years of service on HEXO’s Board of Directors. Through his years of dedication, he has helped build HEXO into a market leader in Canada,” said Dr. Michael Munzar, Chair of the Board. “It is my pleasure to welcome HEXO’s President and CEO, Scott Cooper, to the HEXO board. Scott’s experience with Truss, Molson Coors, and several other publicly-traded consumer packaged goods companies will be instrumental to HEXO’s success as we continue to drive growth and profitability through the commercialization of advanced cannabis products and to defend our position as a market leader in Canada.”

Hexo is making the changes not long after it gave a sobering warning about upcoming convertible debt. Hexo also stated that while it enough money for ongoing working capital requirements, the current funds on hand, combined with operational cash flows,won’t be enough for the cash requirements under the Senior Secured Convertible Note, plus the investments required to continue to develop cultivation and distribution infrastructure, and the future growth plans of the company. Management said it is exploring several options to secure the necessary financing, which could include the issuance of new public or private equity or debt instruments, supplemented with operating cash inflows from operations.

22nd Century

22nd Century Group, Inc. (Nasdaq: XXII) joined the club in making big changes as it announced that Richard Fitzgerald has become the new Chief Financial Officer, effective November 15, 2021. John Franzino, the Company’s previous Chief Financial Officer, was transitioned to Chief Administrative Officer, where he will be responsible for further developing the company’s business processes and leading the company’s financial planning and analysis, operational finance, human resources, and information technology functions.


Debra BorchardtNovember 5, 2021
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced its financial results for the second quarter fiscal 2022 ending September 30, 2021 as total revenue fell 3% to $131 million, missing estimates by $10 million. Furthermore, Canopy noted that excluding the impact from the company’s acquired businesses, net revenue declined 13% and cannabis revenue declined 14% versus last year’s second fiscal quarter.

Flower Wilts

Canopy blamed the decline in flower sales on an insufficient supply of flower with in-demand attributes, including higher THC, in the premium and mainstream categories as well heightened competition focused on single strain offerings in the value flower category. Canopy said that it managed to keep its number one market share in the premium flower category but conceded that it fell by 310 bps quarter over quarter. The value flower category maintained its number two market share, but that also dropped by 540 bps from the first quarter. The company said it expects to bring additional flower and pre-roll products to market over the coming months including new strains across all categories with DOJA 91K, Tweed Powdered Donuts, Twd. Garlic Jelly flower shipped in the current quarter.

Canopy reported net earnings in the quarter with a loss of $16 million, which is an $80 million improvement over last year’s second quarter. Canopy said this was driven primarily by other income totaling $196 million during the quarter mostly attributable to non-cash fair value changes of $233 million.

CEO David Klein said, “In new industries where the potential is immense, progress is rarely a straight line. With a focused strategy, a foundation for growth, and our burgeoning U.S. ecosystem, Canopy is uniquely positioned to win as the industry matures.”

Storz & Bickel vaporizer revenue decreased 34% sequentially, which the company blamed on strong comparison during the year-ago period, as well as shipping restrictions and production shortages caused by global supply chain difficulties. In addition to that, recreational B2C net sales in decreased 11% sequentially, which Canopy blamed on the rapid increase in third-party retail locations across provinces.

Medical net revenue in Q2 FY2022 decreased 6% from Q2 FY2021 driven primarily by higher average order sizes offset by a fewer number of orders.

Lowered Expectations
Canopy also lowered investors’ expectations going forward. While the company said it expects revenue to pick up in the back half of the fiscal year,  it cautioned that the “pace of improvement is expected to be more modest than previously anticipated.” With the losses in market share, Canopy said that it is going to try to stabilize its market share of the Canadian recreational cannabis in the second half of the fiscal year.The company also warned that while the distribution expansion of BioSteel was expected to quicken, shipments may depend on the “timing of chain authorizations and associated shelf resets.” BioSteel is Canopy’s ready-to-drink beverages and CBD brands. “Brand awareness continues to rise, velocity is tracking in-line with expectations and feedback from distributors and retailers has been positive. BioSteel is expected to see its distribution ramp up over the balance of FY2022 and into FY2023 driven by increased listings with national and regional chain accounts.”

The Positives
On a positive note, Canopy said it has increased its vape market share by 20 bps to 8.5% and increased edibles market share by 50 bps to 8.7%, from the first quarter. The company launched a new nicotine-free, Whisl CBD vaporizer in the U.S in the quarter. Whisl is available in over 3,500 Circle K stores across the U.S. currently. whisl is already the #3 CBD vape in the U.S. per IRI data for the 4 weeks ended October 3, 2021. Canopy said that the Martha Stewart CBD remains one of the fastest-growing CBD brands across all formats and is now the #3 brand among all CBD gummies in the food, drug, and convenience-store channel with 12.4% market share, according to IRI data for the 4 weeks ended October 3, 2021. A range of new Martha Stewart CBD confectionery products has shipped in the current quarter.
Price Target Drop
Recently, Cantor Fitzgerald’s analyst Pablo Zuanic dropped his price target on the stock to C$18.50 ($14.90 ) from C$21, while maintaining a ‘Neutral’ rating. “With low expectations, we think sentiment may be driven by company commentary on the path to $250Mn in quarterly sales (almost 2x current levels), break-even EBITDA by March, and growth in the non-cannabis business,” Zuanic wrote.

 


StaffOctober 14, 2021
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) is buying Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana” and each, a “Wana Entity”) in a deal valued at $279 million. Like other U.S. acquisitions byCanopy Growth the deal is dependent on federal legalization in the U.S. Wana is the #1 cannabis edibles brand in North America by market share.

Today’s announcement reflects the culmination of more than a decade of hard work, dedication and vision put forth by our employees and partners, as well as an unwavering commitment to the plant and -our customers,” said Nancy Whiteman, CEO and Cofounder of Wana Brands. “We have long considered what the next phase of our growth might look like, and this deal is not only a great testament to our focus on bottom line growth and fiscal diligence, but also to the value we believe Wana can bring to Canopy and its shareholders now and in the future. We have met many partners along the way over the past 11 years, but none have felt like the best and right fit until today. We are incredibly humbled and honored to be part of what Canopy Growth is building in terms of the future of this industry.”

Wana is the leading cannabis edibles brand in North America based on market share, with the largest multi-market presence of any independent edibles brand across the U.S. gummy market, and #1 share of the Canadian gummy market. Based on Canopy Growth’s consumer research, edibles are expected to continue to serve as the primary point of entry for new consumers into the THC category and as such having a leadership position in the gummy category is critical.

“As we establish Canopy Growth as the world’s leading cannabis company, acquiring the #1 cannabis edibles brand in North America will serve to strengthen our market position in both Canada and the United States,” said David Klein, CEO, Canopy Growth. “The right to acquire Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we’ll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands. We’re confident in the future growth of the edibles category and the tremendous opportunities with Wana.”

 


Debra BorchardtSeptember 20, 2021
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Stifel analysts W. Andrew Carter, Christopher Growe, and Matthew Smith issued a huge report September 2021 report updating investors on their outlook for the cannabis industry. The group lowered estimates and price targets on several companies. The group also noted they have a negative outlook on the Canadian cannabis industry and Canopy Growth in particular. With regards to the U.S. market, the analysts don’t believe the current administration will change the legality of the industry but believe this is actually a positive thing.

Don’t Expect U.S. Legalization

While the election of a Democratic President in the U.S. had many believing that federal reform was around the corner, Stifel doesn’t think so. The analysts said that they don’t believe this is achievable with this Congress and there is limited potential for modest reform. They wrote, “We believe federal inaction provides the leading U.S. MSO’s (multi-state operators) and our four ancillary cannabis names an extended window for value creation.” The group went on to say, “While this has reduced interest in the sector, we remain enthusiastic about the category’s prospects while federal inaction extends the window for value creation for GrowGeneration, Hydrofarm, Scotts MiracleGro, and WM Technology.”

While Stifel doesn’t think Federal legalization is happening anytime soon, the report was mostly positive for U.S. cannabis companies. The analysts wrote, “Year-to-date, we estimate the North American regulated category grew 45%. The U.S. state-licensed market should benefit from a number of new state systems coming online over the next few years: Connecticut, Montana, New Jersey, New Mexico, New York, South Dakota, and Virginia. Once all of these systems are implemented, the percentage of the U.S. population living in a state with an adult use cannabis commercial system will increase to 44.8%, up from 31% today. We estimate the U.S. state-licensed market will grow to nearly $35 billion in 2023 sales, suggesting 21% CAGR aided by robust underlying growth and new systems coming online.”

Canadian Bummer

Stifel noted that in 2018, Canadian cannabis companies drove investor enthusiasm as the first fully legal developed market. Unfortunately, the market has not met the expectations and competition has been stronger than anticipated. For example, there has been a 100% increase in active licenses since 2020. Some areas in Canada have hit saturation, while others have no access at all. The report wrote, “Expanding legal access is likely to be difficult, with 30% of the addressable market in areas where the Provinces own and operate all retail stores, while municipal restrictions prohibit stores in some areas (most notably Mississauga, Ontario, with over 700,000 residents). For the retail operators, the Canadian market is extremely competitive in some areas, with the average Ontario retailer facing 20 stores within a two-mile radius.”

With regards to the U.S. listed Canadian producers, Stifel said that it thinks the costs of capturing category growth are increasing. To be fair, sales continue to grow with Canadian adult-use sales expected to reach $7 billion by 2023. Recovery from pandemic closures and a continuation to pull consumers out of the illicit market all bode well for the industry. However, Stifel tempered the positive comments with issues regarding regulatory changes and underserved markets.

“We caution that the difficult Canadian market will likely serve as a headwind for profitably participating in the market’s growth as there is a long lead time before increased consumption will be able to drive shipments higher,” wrote the analysts. “Retailer inventories continued their decline from 1Q21, but they remain elevated, with Alberta, Ontario, and Saskatchewan all ahead of levels at the end of 4Q20.” Three companies now own essentially 35% of the Canadian market – Canopy Growth, Tilray, and Hexo.

Stifel had some tough love for Canopy Growth. The analysts wrote, “We believe Canopy is actively eroding its position within an inflexible commitment to Canadian market leadership despite the significant resources needed to achieve this endeavor with no consistent evidence validating the ability to achieve market leadership.” Stifel is keeping its Sell rating for Canopy and lowering the price target to C$15, which was lately trading at C$17.70 while the U.S. stock was lately selling at $13. The analysts also pointed out that since the company fired its founder Bruce Linton, results have been underwhelming. They think a personnel change is needed.

Stifel has a Hold rating on Hexo and lowered its price target to C$2.85 even though revenue is growing. The company cited a complex capital structure for Hexo that could weigh on investor interest. Stifel thinks Tilray is best positioned for market leadership, but lowered the price target to C$11.50 from C$14 and maintained the Hold rating.

Hydroponic Concerns

The analysts said they were taking a cautious approach towards the hydroponic category, which they cited for slowing growth due to oversupply issues. However, weather, fire, and construction delays could solve that problem. The report said, “Hydroponics benefits from the irrational deployment of capital toward plant touching opportunities with a myriad of funded “CocaCola of cannabis” pitches. But the hydroponics subsector has been largely insulated from this dynamic. Fresh category skepticism is likely to keep this insulation intact, and we believe each company should sport a stronger position for executing additional M&A. Of the three, we favor GrowGeneration with the dramatic underperformance relative to peers in the face of better positioning to contend with and capitalize on more challenging category dynamics.”

Stifel Updates

The analysts made the following changes:

“We are lowering our near-term estimates for Aurora Cannabis (ACB.CN), Canopy Growth (WEED.CN), Cronos Group, Hydrofarm (HYFM), the Scotts Miracle-Gro Company (SMG), and Tilray (TLRY). Our revisions stem from our more cautious approach to hydroponics category growth (HYFM, SMG) and uninspiring Canadian POS trends (ACB, WEED, TLRY). We are
increasing our estimate slightly for GrowGeneration (GRWG) for the latest acquisitions (two stores), and we are updating our HEXO estimates for the addition of Redecan and 48North. Our ratings remain intact, but we are lowering our target prices for Aurora Cannabis, Canopy Growth, Cronos Group, HEXO, Hydrofarm, ScottsMiracle-Gro, and Tilray. We recently initiated coverage of WM Technology (MAPS) with a Buy rating and $19 target price. While our WM Technology outlook remains intact, we approach our F4Q21 estimates with incremental caution, given slowing category growth, particularly in California, which represents over 60% of the company’s sales.”

 

 

 

 


StaffJuly 28, 2021
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Seth Rogen’s cannabis company Houseplant and Canopy Growth Corporation (NASDAQ: CGC) have decided to end their relationship after three years. It won’t affect the company’s U.S. business and the product is expected to remain on some shelves through September 2021. The relationship between Houseplant and Canopy started in 2018, well ahead of Canadian legalization. The Canadian cannabis market has evolved substantially since those days, and the parties believe the time is right for the Houseplant brand to develop independently while Canopy advances its focus on wholly-owned brands for the Canadian market.

“The recent launch of Houseplant in the United States has given us a clear benchmark for what Houseplant stands for, and how we plan to bring the brand to life globally,” says Michael Mohr, Co-Founder and CEO, Houseplant. “While our collaboration with the Canopy team has been fruitful and we continue to hold similar views on the opportunities ahead, we believe the time is right for us to focus on Houseplant independently.”

During these three years, Houseplant has become a popular consumer brand in Canada and is currently a top 10 brand in the premium cannabis market in Ontario. Beverages are a highlight of the brand’s success, with Houseplant Grapefruit notably attaining the top-selling cannabis beverage spot in Canada (measured by units sold) in its launch year. More than one million cans of Houseplant beverages were sold in Canada within the last year.  Houseplant launched a line of premium homewares and cannabis products in the United States in March 2021 and has quickly become a cultural and industry leader.

Canada is where it all started – for us as people, and for the brand,” says Houseplant Co-Founder Seth Rogen. “This is not an exit from the Canadian market, but a chance for us to evolve the brand.” Houseplant plans to relaunch in the Canadian market in the future with products more consistent with its US offerings.

“We’re proud of our collaboration with Houseplant. Together, we’ve delivered high quality and innovative products to Canadian consumers and played a critical role in defining the premium cannabis category in Canada,” said Rade Kovacevic, President and Chief Product Officer, Canopy Growth. “As we move forward, Canopy will advance our focus on our wholly-owned brands for the Canadian market and we wish the Houseplant team the best in their future endeavors.”

 

 

 


Debra BorchardtJune 23, 2021
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Canopy Growth Corporation  (TSX: WEED) (NASDAQ: CGC) has completed its acquisition of The Supreme Cannabis Company, Inc. (TSX: FIRE) (OTCQX: SPRWF), a deal that was valued at $435 million. Supreme Cannabis’s portfolio of brands includes 7ACRES7ACRES Craft CollectiveBlisscosugarleaf, and Hiway. Supreme Cannabis addresses national and international medical cannabis opportunities through its premium Truverra brand. As a result of the deal, Supreme has become a wholly-owned subsidiary of Canopy. Supreme shares are expected to be de-listed from the Toronto Stock Exchange on or about June 23, 2021.

“Through the addition of Supreme, we’re strengthening our leadership position by offering Canadian consumers a differentiated brand portfolio – including the addition of 7ACRES, which further bolsters our premium product segment,” said David Klein, Chief Executive Officer of Canopy. “Supreme has demonstrated the ability to cultivate premium quality flower at low cost and we’re excited to leverage these capabilities to further our leadership in the Canadian market as we scale these newly added brands and accelerate revenue growth.”

Canopy noted in a statement that the addition of 7ACRES and the 7ACRES Craft Collective enhances its leading market share position and supplements its production capacity through the acquisition of Supreme’s low-cost, scalable cultivation facility in Kincardine, Ontario. That facility has a proven capability for producing high-quality flower from sought-after strains that have earned Supreme’s brands their loyal consumer followings. Canopy also said that the acquisition of Supreme further strengthens its overall leadership position within the Canadian recreational market and creates a pro forma Q4 FY 2021 market share of 18.1%.

The company previously said that the combined pro forma market share was estimated to be 23.3% of the premium flower segment in Ontario and 21.4% in British Columbia. However, Canopy Growth noted that cost synergies will not be felt for another two years and those are expected to be in the $30 million range. 

“We believe the acquisition of Supreme by Canopy represents the best path forward for Supreme’s shareholders to generate long-term value,” said Beena Goldenberg, Chief Executive Officer of Supreme. “We are proud to have built an attractive company with high-quality, sought-after premium products and brands. We feel joining with Canopy – a leader in the Canadian recreational market – is aligned with our ultimate goal of becoming a premier cannabis CPG company.”

Supreme felt the challenges of Covid in 2020 causing the company to focus on cost-cutting measures and strengthening the balance sheet. Canopy also spent a year addressing huge net losses while also looking to shore up its finances.


Debra BorchardtJune 4, 2021
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Canopy Growth (NASDAQ: CGC) has been following a pretty strident strategy of restructuring the company as it keeps cutting assets and unwinding deals made by former CEO Bruce Linton. The latest casualty this week was a deal with Aubrey “Drake” Graham to launch More Life Growth company. Drake originally made the deal in November 2019 with Linton. Under the agreement, Canopy sold 100% of its shares in a subsidiary to More Life in exchange for just 40% of the company. Drake held the remaining 60%.

Canopy said in its filing that the subsidiary didn’t meet the “definition of an operation” and thus no goodwill was allocated. Canopy unrecognized assets and liabilities associated with More Life to the tune of C$33.7 million and took a C$10.3 million ($8.6 million) impairment charge on the joint venture in the fiscal fourth quarter.

In the filing, Canopy said it controlled the facility and inventory grown at the facility planned for More Life and had recorded those items as assets for Canopy Growth since the deal had been agreed in 2019.

“We have indeed divested from More Life,” Jennifer White, director of communications at Canopy Growth, has told BNN Bloomberg. “The facility in Scarborough which had been intended to be part of that agreement is now Canopy Growth’s R&D facility, where we will work on plant science and science development projects,” she added.

At the time of the agreement, it was seen as a way to skirt cannabis advertising rules. Drake would be able to talk about More Life as an owner and thus it wouldn’t be considered promotional. At the time of the announcement of the Drake deal, Canopy Growth stock had been on a freefall, dropping from roughly $50 in April 2019 to $18 in November 2019. The news of the Drake deal lifted the stock back into the low $20’s.

Martha Remains

Drake may be gone, but the relationship with product celebrity Marth Stewart remains strong. That arrangement was made in February 2019 for Stewart to lend her name to a line of animal CBD products. The products were launched in 2020 and the company expanded the line in 2021. It is rumored that Martha’s pet treats are bringing in a million dollars a month in sales, although this can’t be confirmed as Canopy doesn’t release these sales figures. In May 2021, Stewart was named a Strategic Advisor to Canopy Growth further cementing her position in the company.


Debra BorchardtJune 1, 2021
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC)  announced its financial results for the fourth quarter and fiscal year 2021 ending March 31, 2021. Canopy Growth’s revenue increased 38% to $148 million. The net losses for the quarter were $617 million, an improvement over 2020’s net losses of $710 million. The company blamed the bloated net losses on non-cash fair value changes of $292 million and impairment and restructuring charges of $75 million primarily related to changes to its Canadian operations that were announced on December 9, 2020.

For the full year, net revenue increased 37% to $546 million over the prior year driven by double-digit growth across Canadian cannabis, international cannabis and other consumer products businesses. Total net cannabis revenue of $379 million in the fiscal year 2021, represented an increase of 28% over the prior year.

The reported fiscal year 2021 net loss of $1.7 billion, a $283 million wider loss than fiscal year 2020, was driven primarily by the year-over-year change in other income (expense), net, the reduction in the income tax recovery, and expected credit losses on financial assets and related charges, and partially offset by the year-over-year improvement in gross margin and reductions in selling, general and administrative expenses, share-based compensation expense, and asset impairment and restructuring charges.

“During Fiscal 2021, Canopy Growth transformed into a CPG-modelled organization, reinforcing a foundation for sustained growth and long-term success. By leveraging consumer insights and innovation to deliver best-in-class products, Canopy Growth is positioned to achieve our goal of unleashing the power of cannabis to improve lives,” said David Klein, CEO, Canopy Growth. “We are starting to see strong momentum across all of our key businesses and remain firmly focused on capitalizing on U.S. opportunities in Fiscal 2022.”

“We made tremendous progress improving our supply chain and right-sizing our manufacturing footprint, bringing supply and demand into balance,” added Mike Lee, CFO. “Our cost savings program is on track to deliver $150 – $200 million of savings within the next 18 months, and we remain committed to our path to profitability by the end of Fiscal 2022 while continuing to invest in an organization that is focused on insights, innovation and gaining momentum in the U.S. market.”

Cash Position

While the losses are staggering, the cash and short-term investments of $2.3 billion on March 31, 2021 give the company a cushion. This was an increase of $0.3 billion from $1.98 billion on March 31, 2020, and reflects net proceeds from a $930 million US$750 million ) senior secured term loan announced on March 18, 2021, partially offset by EBITDA losses and capital investments.

Outlook

Canopy said in a statement that the implementation of supply chain optimization was well underway with network optimization and complexity reduction initiatives expected to realize its previously stated cost savings of $150 million to $200 million by the end of the first half of FY 2023. It also said that the tight-sizing of our Canadian production footprint has improved cannabis supply and demand with the equivalent kilograms of cannabis sold in Q4 2021 exceeding kilograms harvested by over 40%. Overall Inventory levels declined sequentially in Q4 2021 even as finished inventory increased in support of various new product launches.


Debra BorchardtApril 8, 2021
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Canopy Growth Corporation (NASDAQ: CGC) is buying The Supreme Cannabis Company, Inc. (OTCQX: SPRWF) in a deal valued at approximately $435 million on a fully diluted basis. Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and $0.0001 in cash in exchange for each Supreme Cannabis Share held. There is a $12.5 million termination fee. Supreme Cannabis’s portfolio of brands includes 7ACRES7ACRES Craft CollectiveBlisscosugarleaf, and Hiway. Supreme Cannabis addresses national and international medical cannabis opportunities through its premium Truverra brand.

“As we continue to expand our leading brand portfolio, we’re excited to reach more consumers through Supreme’s premium brands and high-quality products, further solidifying Canopy’s market leadership,” said David Klein, Chief Executive Officer of Canopy. “Supreme’s deep commitment to superior genetics, top-tier cultivation, and strict quality control, paired with Canopy’s leading consumer insights, advanced R&D, and innovation capabilities, is expected to create a powerful combination that aligns with our strategic focus to generate growth with premium quality products across key categories.”

The combination of market leader Canopy Growth with Supreme Cannabis’ top position in Canada will lead to a pro forma Canadian recreational market share of 13.6% according to a company statement based on Headset data. This includes 7ACRES which is Canada’s number one premium flower brand, number one in PAX vapes, and Top-5 in pre-rolled joints. The company said that the combined pro forma market share is estimated to be 23.3% of the premium flower segment in Ontario and 21.4% in British Columbia. However, Canopy Growth noted that cost synergies will not be felt for another two years and those are expected to be in the $30 million range. 

“This transaction is a testament to the value created by all the teams at Supreme and will be beneficial to all of our stakeholders,” added Beena Goldenberg, President, and CEO of Supreme Cannabis. “We have been successful at delivering great products that achieved strong customer loyalty and operating at levels of efficiency that are industry-leading. We have also built a highly sought-after premium brand in 7ACRES. Combining Supreme Cannabis with Canopy – a Canadian market leader with exposure to the United States – presents a significant value creation opportunity for both companies. We look forward to working with Canopy to complete this transaction.”

The deal is said to provide Supreme Cannabis shareholders with a premium per share of approximately 66% based on the closing prices of the Supreme Cannabis Shares and Canopy common shares on the TSX as of April 7, 2021.

Supreme felt the challenges of Covid in 2020 causing the company to focus on cost-cutting measures and strengthening the balance sheet. Canopy also spent a year addressing huge net losses while also looking to shore up its finances.

 


Debra BorchardtMarch 18, 2021
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Canopy Growth Corporation (NASDAQ: CGC) announced that it has entered into a credit agreement with Funds advised by King Street Capital Management, L.P. Under the Credit Agreement, the company has raised a $750 million in a senior secured term loan. Canopy also said it has the ability to obtain up to an additional $500 million of incremental senior secured debt pursuant to the Credit Agreement.

“We are delighted to welcome King Street as our anchor debt investor and look forward to building value for both our credit and equity investors over time,” said Mike Lee, EVP, and CFO of Canopy Growth. “This transaction further strengthens Canopy’s balance sheet, provides additional capital to invest in high-return growth opportunities, and marks a key milestone for us as we work towards achieving a more efficient capital structure”.

In February, Canaccord Genuity downgraded Canopy Growth to a Sell rating. Cormark Securities also downgraded the stock from Market Perform to Reduce. Benchmark also downgraded the stock from Buy to Hold. The stock was lately trading at $34. down from the company’s 52-week high of $56.

“We have been impressed with the growth of Canopy as a leader in the Canadian market and look forward to providing this strategic capital as Canopy further expands its business,” said Noah Charney, Managing Director at King Street.

Last month, Canopy recorded an eye-popping net loss of $829 million. Canopy said that this was a $720 million wider loss than the previous quarter and blamed the loss on impairment and restructuring charges and other related charges of $416 million. $382 million of those related charges were as a result of the announcement on December 9, 2020. Canopy shocked investors at the time when it announced it would cease operations at several sites, plus its outdoor cannabis grow operations in Saskatchewan. The company said those decisions were the partial outcome of an ongoing end-to-end review designed to improve its margins. At the time, Canopy said it expected to record estimated total pre-tax charges of approximately $350 -400 million in the third and fourth quarters of Fiscal 2021.

Loan Terms

The Term Loan Facility has no amortization payments and matures on March 18, 2026. The gross proceeds, net of fees and expenses, will be used by Canopy Growth for working capital and general corporate purposes, including without limitation, growth investments, acquisitions, capital expenditures, and strategic initiatives. The Term Loan Facility has a coupon of LIBOR plus 8.50% and is subject to a LIBOR floor of 1.00%. Giving effect to the net proceeds from the Term Loan Facility, the company’s estimated pro forma cash, cash equivalents, and short-term investments position as of December 31, 2020, would have been approximately CAD$2.5 billion.


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