Canopy Growth Corp. to lay off a third of its workforce, plans transition to 'asset-light' model

Canopy Growth Corp., backed by Corona beermaker Constellation Brands Inc., will shut major operations and eliminate more than a third of its workforce, as per Bloomberg reports, citing the plummeting marijuana industry in Canada, and the failure to meet expectations due to the existence of a thriving black market.

The downsizingof Canada’s second-largest pot producer is the second restructuring that is taking place in less than 12 months. Coupled with the layoffs announced in April 2022, Canopy has estimated a saving of almost US$230 million and even a profit margin, helping it become the right size for Canada, and enter the US markets through Canopy US, reported Bloomberg.

On a conference call, Chief Executive Officer David Klein cited Canada’s thriving blackmarket for the revenue dip.

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“Today, there are two very different cannabis markets in Canada. One that’s legal, highly taxed and regulated, and one that’s thriving and illicit,” he said, estimating that the black market represents about 40 per centof Canada’s overall cannabis sales. That has meant that the $7 billion marijuana market that was supposed to materialize in Canada hasn’t come to fruition, Klein said, and forces companies like his to try to compete on price with illegal operators who don’t have to pay taxes.

Canopy dropped 17 per centin New York on Thursday (February 9), with shares having dropped 74 per cent in the past 12 months.

The company will transition to an “asset-light” model in Canada, sourcing many of its products from outside parties, and limiting production operations. The changes effectively signify the end of Canopy’s cannabis cultivation facility in Smiths Falls, Ontario.

“Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership,” Canopy CEO Klein said in the statement.

Canopy was once Canada’s most profitable marijuana company — now it’s second to Tilray Inc, as per Bloomberg report.

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