Canopy, Constellation Brands, WEED.T, ACB.T, Aurora, Klein, Linton, Write down

Cost-cutting by Canopy Growth (WEED.T) trims unessential workers, leaving more time for leisure sports

Canopy Growth (WEED.T) is still an industry leader, though in terms of employee layoffs in an effort to cut costs during these uncertain times, according to a report by Bloomberg.

Those following Canopy will remember the previous round of 200 “temporary” layoffs earlier this month at the order of David Klein, the company’s newly appointed CEO.

“Although difficult, the decisions that have been made over the last few months are to allow Canopy Growth to remain focused on the areas where we are winning and ensure that we are delivering the highest quality products to our consumers in every market where we operate,” Klein said in a statement.

“For a long time Canopy has prioritized doing things first, but going forward we’ll be focused on doing things the best in the markets and in the product formats that show the greatest promise.”

The company says changes to its marketing department comprised the majority of layoffs, but then there are changes abroad to consider.

Canopy Growth has also provided an update on the restructuring of its international assets, a strategy the company says it hopes “further align global supply and demand, streamline operations and improve organizational focus.”

  • Africa: Exiting operations in South Africa and Lesotho and liquidating assets;
  • Canada: Shuttering indoor facility in Yorkton, Saskatchewan, bring domestic production in line “with market conditions;”
  • Latin America: Ceasing operations at cultivation facility in Colombia, shifting to an “asset-light model that leverages local suppliers for raw materials and Procaps for formulation and encapsulation activities;”
  • United States: Canopy Growth will cease its farming operations in Springfield, New York.

Canopy says they are aiming to match their output to supply curves–meaning they brought far too much capacity online to be sustained.

Under Linton’s leadership, the company always had to be first. Growth through mergers and acquisitions were commonplace, and Canopy had to be a successful operation. After all, would it be a household name otherwise?

Sadly, the company isn’t likely to recover. The Canadian cannabis market is flush with black market cannabis at half the price of government flower. What’s more, these black market buds don’t turn to dust in one’s grip.

The American cannabis operators still have upside, however. Legalization there is only on a state-by-state basis and it’s still early going.

Who among us expects the same price action from Canopy beefing up its presence in Ontario compared to Curaleaf (CURA.C) securing bids for one of the first stores to open up in Texas? Capitalism is based on perpetual growth, and only the American market represents the opportunity for wealth creation the Canadian market did beginning in 2016.

And then there is the company’s relationship with the vaunted maker of Corona, Constellation Brands (STZ.NYSE),which invested $5 billion back in 2017.

In August 2019, Constellation announced it would be incurring a $55 million loss due to said investment in Canopy Growth. Eventually, Linton was pushed out and David Klein was given the big seat.

Now Klein, Constellation’s CFO since 2015, is in charge and the drink manufacturer is cutting costs left and right. Whereas Linton’s modus operandi was voracious growth and acquisition–even in tiny Lesotho, an African kingdom within the borders of South Africa.

These frivolous acquisitions are certainly to be disposed of quickly, as we’ve already seen under Klein’s leadership, and that is a key detail. Aurora Cannabis (ACB.T), a company which parallels Canopy in many respects, has even less of a cash position and has yet to begin emergency measures despite a similar change in leadership.

But at this point, it may be polishing the brass on the Lucetania.

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