Canopy Growth reports that Q4 net revenue down 25 per cent from year prior

Canopy Growth Corp.’s shift toward premium cannabis helped the company report a smaller quarterly loss compared with a year ago, but it wasn’t enough to prevent a 25 per cent drop in revenue.

The Smiths Falls, Ont. cannabis company behind brands like Tweed, Doja and Ace Valley said on May 27 that net revenue in what was Canopy’s fourth quarter totalled $111.8 million, down from $148.4 million in the same quarter last year.

On a year-over-year basis, the company’s global cannabis net revenue fell 35 per cent to $66 million in the quarter. That included a 36 per cent decrease to $39 million from Canadian recreational cannabis and a 33 per cent drop to $27 million from medical cannabis and other products like edibles sold in Canada.

Revenue from other consumer products revenues including Storz & Bickel (vapes), This Works (skin care), BioSteel (sports drinks and protein powders) and other items fell three per cent to $45.8 million

Judy Hong, the company’s chief financial officer, positioned the results as a consequence of moving toward premium products, which she characterized as necessary in the long-term because the market is seeing price compression and a shift in consumer preferences.

“We deliberately chose to not chase low-margin value flower sales and for a cannabis company transitioning your product mix can be challenging,” she told analysts on a call.

“Had we continued to focus resources on actively pursuing low-margin value flower sales, our Canadian recreational cannabis business would have delivered significantly stronger revenue in fiscal ’22, but at the expense of doing what was right, which was putting our Canadian cannabis business on a path to sustainable growth and profitability.”

The shift comes after cannabis companies spent the years since recreational marijuana was legalized in Canada in October 2018 racing to drop prices in an effort to squeeze out the illicit market and attract new consumers.

In recent months, many like Canopy have been pivoting away from that strategy and focusing more intensely on premium cannabis because it sells for higher prices and often has a more loyal consumer following.

To help Canopy navigate the shift, Hong said the company improved its forecasting processes to ensure it is more agile in adjusting production to reduce inventory writeoffs. Canopy reported inventory writedowns of nearly $120 million in its latest fiscal year.

Some of the savings from better forecasting will be offset by wage inflation and rising supply chain costs, but Hong said Canopy is still confident it can deliver savings between $30 million and $50 million over the next 12 to 18 months.

Many of those savings will come from a cost reduction strategy Canopy implemented recently to make cannabis cultivation more affordable as well as supply chain efficiencies.

The plan includes retooling facilities, reviewing procurement strategies, implementing flexible manufacturing processes and reducing third-party professional and office fees.

It was unveiled just as Canopy laid off 243 workers in Canada, Europe and the U.S. last month.

Pressure to improve the company’s economics has been mounting since Canopy announced it would not reach profitability in the second half of its fiscal 2022, as it once predicted. It has not released a new timeline, but chief executive David Klein said on the same call as Hong that he hopes to reach profitability “as soon as possible.”