Canopy Growth FY23 Net Revenue Declines 21%, Announces Remedial Actions Against BioSteel

Canopy Growth Corporation CGC WEED released its financial results for the fiscal year ended March 31, 2023, revealing net revenue of CA$403 million ($305 million) in FY2023 declined 21% as compared to FY2022. The decrease is primarily attributable to increased competition in the Canadian adult-use cannabis market, the divestitures of C³ Cannabinoid Compound Company GmbH and the Canadian business-to-consumer cannabis business, and softer performance from Storz & Bickel and This Works. These decreases were partially offset by growth of its BioSteel Sports Nutrition Inc. business in the Canadian market.

Q4 Fiscal Year 2023 Financial Highlights

• Net revenue of CA$88 million in Q4 FY2023 declined 14% as compared to Q4 FY2022.

• Gross margin in Q4 FY2023 was (103%) as compared to (166%) in Q4 FY2022.

• Net loss was CA$648 million, which is a CA$59 million increase as compared to Q4 FY2022.

• Adjusted EBITDA loss was CA$96 million, a CA$36 million improvement in adjusted EBITDA loss as compared to Q4 FY2022.

FY 2023 Financial Highlights

• Gross margin was (26%) as compared to (40%) in FY2022.

• Net Loss was CA$3.3 billion, which is a CA$3 billion increase as compared to FY2022, driven primarily by a CA$1.9 billion increase in asset impairment and restructuring costs primarily related to goodwill impairment losses associated with the company's cannabis operations reporting unit, as well as a CA$1.2 billion primarily related to the impact of non-cash fair value changes partially offset by improved gross margins.

• Adjusted EBITDA loss was CA$350 million, a CA$76 million improvement in adjusted EBITDA loss as compared to FY2022.

• Cash and short-term investments were CA$783 million at March 31, 2023, representing a decrease of CA$589 million from CA$1.4 billion at March 31, 2022. Debt amounted to CA$1.3 billion at March 31, 2023, representing a decline of CA$194 million from CA$1.5 billion at March 31, 2022. Subsequent to March 31, 2023, CA$127 million of debt owing under the credit facility was repaid at CA$0.93 cents on the dollar for CA$117 million, and CA$100 million of the 2023 notes were settled through the issuance of a promissory note due at the end of the third quarter of FY2025.

BioSteel Review and Remedial Actions

In connection with the preparation of its financial statements for the FY 2023, the company identified certain trends in the BioSteel business unit. With the oversight of the audit committee, the company launched an internal review, together with independent external counsel and forensic accountants.

This review identified material misstatements in certain of the company’s prior financial statements related to certain sales in the BioSteel business unit, particularly with respect to the timing and amount of revenue recognition. The review also identified material weaknesses in the company's internal control over financial reporting as of March 31, 2023. Overall, the correction resulted in a decrease of approximately CA$10 million in net revenue for FY2022, or approximately 2% of total net revenue for the company. For the nine months ended December 31, 2022, the correction resulted in a decrease of approximately CA$14 million in net revenue, or approximately 4% of total consolidated revenue for the company.

As a result of the review, the company is continuing to implement several remedial actions, including management changes and appropriate personnel actions. The company is also considering all legal options that may be available in connection with the associated overpayment made in FY2023 to the minority shareholders of BioSteel as a result of the overstatement of revenues.

Additionally, Canopy Growth has taken decisive actions to sustain growth and improve profitability of BioSteel including: exiting all BioSteel international business; prioritizing resources towards the growing Canadian market; refining our market strategy in the U.S.; changes to the BioSteel business including cost reductions in warehousing, production, product sampling and overall staffing reductions; and exploring additional options to further minimize operating cash burn.

Photo: Benzinga edit with photo by Kindel Media on Pexels

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