Amid the ongoing weakness and quest for profitability in the cannabis sector, Canopy Growth (NYSE: CGC) has made plenty of headlines in the past week. On Thursday, the hemp stock laid off nearly 30 people of its workforce across designations at its headquarters in Ontario. But will Canopy Growth’s restructuring attempts pay off?
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A series of layoffs follows its cost-cutting initiatives
Canopy confirmed that the retrenchment happened as a part of its strategic restructuring program. It is making visible efforts towards cost-reduction this year and has been on a layoff-spree.
Since March, the Canadian pot company has terminated close to 800 employees across its facilities in British Columbia, Africa, the US, UK, and Saskatchewan in Canada. Layoffs has been observed as a disturbing trend across the cannabis sectors in the wake of the COVID-19 pandemic. Leading companies like OrganiGram and Aurora Cannabis have also let go of a major portion of their staff.
Rationalizing portfolio and entry into CBD-infused beverages key for revival
Some of the other efforts Canopy Growth is making towards cost-reduction includes shrinking the existing product portfolio and rolling out low-cost dried flower products. The hemp stock also intends to make certain improvisations in the moisture level of the dried-flower products.
According to estimates, the company has seen a decline in market share from 20% in Canada’s recreational marijuana market to 15% since the beginning of 2020. Most of its efforts are now focussed on achieving its target gross margin of 40% and improving its market share.
Canopy Growth is betting high on cannabis-infused beverages and considers this product-line to be a major market-booster in Canada. Most of the Canadians now prefer CBD drinks as an alternative to alcoholic beverages. Canopy’s optimism over CBD beverages doesn’t come as a surprise given a 39% stake of the world-leading beverage company, Constellation Brands. Currently, Cannabis 2.0 products comprise 12% of the company’s total sales.
The hemp stock is also quite optimistic about making a mark in the US cannabis market through its BioSteel sports drink. Canopy CEO David Klein, also intends to launch the company’s Martha Stewart-led CBD Brand this fall in the US.
Canopy has to face a new set of challenges
The cannabis giant has lost about 12% in chare value this year, but it recovered in July. They believe the CBD beverage segment does have long-term potential. Sensing the opportunity, Canopy has already shipped 530,000 units so far.
However, its real impact is yet to be seen on the top-line numbers. Notably, at this point, Canopy has to convert non-cannabis customers into regular consumers. This also comes with the uphill task of creating a loyal brand following for its CBD beverages out of those consumers. Hence, the marijuana stock has a dual role to play which is quite challenging.
The company’s Q1 results were weak and it still isn’t even close to profitability. It is best to remain cautious about this marijuana stock before the release of Q2 numbers. Investors also need to watch out the outcome of corporate restructuring, and also how Canopy proceeds in the CBD beverage segment.
Will Canopy Growth’s restructuring attempts pay off?
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