The sale, the fifth such deal since April 1, is part of Canopy’s ongoing efforts to improve liquidity by reining in costs through layoffs, exits from some international markets and store closures.

The company has generated proceeds of $81 million through these transactions and expects $150 million in total proceeds from facility divestitures by the end of September this year.

“The proceeds from this transaction further the achievement of our target of $150 million… enabling us to efficiently reduce our overall footprint and strengthen our financial position,” said CEO David Klein.

Canopy’s shares, which have slumped more than 80 per cent this year, have been under added pressure since last week after the company raised ‘going concern’ doubts citing recurring losses from operations and certain debt obligations due in the short term.

The company had said it requires additional funding to continue operations but analysts have questioned the cannabis producer’s ability to reduce cash-burn and turnaround operations. Brokerage Benchmark slashed its price target on Canopy to zero earlier this week.

The company had $783 million in cash and short-term investments as of March 31, about 43 per cent lower than a year earlier.

Canopy also faces an investigation from the U.S. Securities and Exchange Commission over the reporting of revenue in its BioSteel segment.

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Smiths Falls, Ont.-based Canopy announced Sept. 27 it has an agreement in place with OEG Retail Cannabis — already the owner/operators of Canopy’s franchised Tokyo Smoke stores in Ontario — to buy Canopy’s 23 corporate-operated Tweed and Tokyo Smoke stores in Manitoba, Saskatchewan, Newfoundland and Labrador.

A separate Calgary-based cannabis retailer, 420 Investments, operator of the Four20 chain in that province, has a deal to buy five Canopy-owned retail stores in Alberta and rebrand them under its own banner.

Canopy said the deal “reinforces (its) focus on advancing its path to profitability as a premium brand-focused cannabis and consumer packaged goods company.”

The deal with OEG would give it not only the stores but “all Tokyo Smoke-related intellectual property,” Canopy said in a release. Tweed stores going to OEG in this deal are to be rebranded as Tokyo Smoke.

Canopy would continue to own and operate the Tweed consumer brand, which includes a “vast portfolio” of products such as pre-rolled joints, drinks, edibles, whole flower, vapes, cartridges and oils, the company said.

“We are taking the next critical step in advancing Canopy as a leading premium brand-focused (consumer packaged goods) cannabis company while furthering the company’s strategy of investing in product innovation and distribution to drive revenue growth in the Canadian recreational market,” Canopy CEO David Klein said in a release.

“By realizing these agreements with organizations that possess proven cannabis retail expertise, we are providing continuity for consumers and team members.”

Canopy’s “path to profitability” has been uphill: for its fiscal year ending March 31, it booked an company-attributable net loss of $302.2 million on net revenue of $520.3 million, up from an attributable net loss of $1.74 billion on net revenue of $546 million in the year earlier.

The company in April announced a cost-cutting plan including “cultivation-related efficiencies,” facility improvements, contracting out some processing work, cutting sales and administrative costs and reducing staff headcount, with a goal of $100 million to $150 million in savings over the following 12-18 months. — Glacier FarmMedia Network

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Most Canadian marijuana companies have struggled to turn a profit despite more than three years of cannabis legalization due to fewer-than-expected retail stores, cheaper rates on the black market and sluggish overseas growth.

That has piled pressure on companies to slash expenses, with Canopy saying Tuesday that it would also reduce costs by lowering how much it spends on cultivation of weed.

The moves are expected to yield cost-savings of between $100 million and $150 million within 12 to 18 months.

Yet the Smiths Falls, Ont. company, which lost $67.4 million in the third quarter, did not set a new timeline for turning profitable.

Canopy said it expected to take charges of $250 million-$300 million in the fourth quarter, most of which would relate to the write-down of excess inventory.

It also expects to incur between $100 million and $250 million in impairment charges, largely driven by goodwill and intangible asset impairments.

The company had 3,259 employees, including 2,362 full-time employees in Canada, as of March 2021.

— Reporting for Reuters by Arunima Kumar in Bangalore.

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Demand for pot edibles such as gummies has risen during the pandemic, as people stuck at home turn to cannabis-related products for relaxation and entertainment.

“The categories that resonate the most with consumers, particularly in THC space are gummies and beverages, we continue to look at other ways of consumption but these two seem to be the ones that are taking off,” Canopy CEO David Klein told Reuters.

Tetrahydrocannabinol or THC is the ingredient in marijuana that gets users ‘high.’

Wana sells gummies in the U.S. state of Colorado and licenses its intellectual property to partners who manufacture, distribute and sell Wana-branded gummies in states including California, Arizona, Illinois, Michigan and Florida.

Canadian pot producers are looking at cross-border expansion, as the industry has garnered investor interest with some U.S. states legalizing pot and on increased expectations for federal marijuana reform.

“We remain more bullish than others in the regulatory front and feel that our ecosystem in the U.S. is strong enough to grow even without federal permissibility happening in the short term,” Klein added.

U.S.-listed shares of Smiths Falls, Ont.-based Canopy, down 46 per cent so far this year, rose nearly two per cent to US$13.55 in premarket trade.

The acquisition will provide Canopy access to Wana’s vertically integrated facility in Colorado and its licensing division, the company said, adding that it would continue operating independently in the state until the deal closes.

The transaction is structured as three separate option agreements allowing Canopy Growth a call option to acquire 100 per cent of the membership interests in each Wana entity, the company said in its statement.

— Reporting for Reuters by Rithika Krishna in Bangalore.

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Major producers such as Colombia’s Clever Leaves and Canada’s Canopy Growth are developing and selling medicinal cannabis products to a Brazilian consumer segment estimated at 10 million to 13 million people. This results from a 2019 regulatory change allowing the import, sale and manufacturing of such products.

But permission for cultivation of hemp and cannabis in Brazil would be a bigger prize. If granted, the industry could blossom in four to five years, based on the experience of other countries such as Colombia.

“By 2025, I would like to be planting hemp in the interior of Pernambuco,” said Jose Bacellar, founder of Canada’s VerdeMed, referring to a northeastern state known for illegal marijuana growing.

A proposal that would legalize cultivation was approved in June by a congressional committee. Lawmakers are weighing if it could be fast-tracked to the Senate for approval. If passed there, President Jair Bolsonaro would have to sign it into law.

While Bolsonaro’s far-right positions may seem an unlikely match for the bill, the proposal has support from some members of the powerful farm sector, a key constituency that helped him win the 2018 election.

‘Silicon Valley of cannabis’

In the quiet town of Viçosa in southeastern Brazil — which some call the Silicon Valley of cannabis — researchers are developing a hemp variety better suited to the tropics.

If the law is changed and research is successful, Brazil could become a top grower of cannabis and hemp, experts said.

Sergio Rocha, director of ag-tech startup Adwa which is developing the hemp strain for Brazil, said about three million square km of land would potentially be suitable for cultivating the new variety.

Brazil could overtake China, the world’s largest hemp producer, which has about 670 square km planted.

“Using a part of Brazil’s agricultural land would be enough to give the country the title of world’s largest producer and exporter of hemp fibers, seeds and flowers for medicinal and industrial purposes,” said Dennys Zsolt, an agronomist specializing in the plant.

Brazil bans growing of Cannabis sativa L, the plant that produces hemp and marijuana. Hemp, which has less than 0.3 per cent of the psychoactive compound THC, contains CBD or cannabidiol. This non-intoxicating ingredient has been touted as beneficial for many health conditions including childhood epilepsy.

Growing the plants in Brazil would lay the foundation for a vertically integrated industry. A stable source of the raw material would support manufacturing of medicinal cannabis products, growth of a retail market and exports. Recreational cannabis would remain illegal.

Gabriela Cezar, chief executive of New York-based Panarea Partners investment banking firm, sees Brazil playing a leading role in hemp in Latin America, a region she calls the “epicentre of world hemp production.”

Panarea plans to form a Brazilian cannabis company focused on pharmaceutical products for pets while seeking to broker more cannabis deals in Brazil.

Tropical advantage

Among Brazil’s advantages are lower growing costs because its warm climate allows plants to grow outdoors compared to greenhouses in some countries. Stable hours of sunlight due to Brazil’s proximity to the equator are another plus.

Canopy Growth is “actively monitoring the advancement of hemp regulations in Brazil,” David Culver, the company’s vice president of global government relations, said.

But nothing is certain without the change to Brazil’s law, though some signs suggest the prospects are favorable. When Rocha spoke to a congressional committee about hemp in 2019, he was surprised that conservative lawmakers were not hostile.

“After I finished presenting the maps and hemp’s potential, I was applauded,” he said.

Although the farm caucus has not taken a formal position, members of the group said a majority in both houses of Congress back the proposal. The farm caucus controls slightly fewer than half the seats in the two chambers, and the law requires approval by a simple majority.

Centre-right lawmaker Fausto Pinato, a member of the farm caucus, said he supports the bill.

“If you are authorizing the sale, why not cultivation?” he said.

— Reporting for Reuters by Ana Mano in Sao Paulo, Jimin Kang in Seul and Maximilian Heath in Buenos Aires.

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Shares of Canopy, up 15 per cent this year, fell around 4.6 per cent to $36 after it announced the cash-and-stock deal for Supreme, which owns pot brands including 7Acres, Blissco and Sugarleaf. Shares of Toronto-based Supreme surged 50 per cent, to 40 cents.

The opening of more retail stores and a rise in weed use during the pandemic has brought back investor dollars for cannabis producers after years of underperformance. Hopes of U.S. reforms allowing cross-border commerce are also boosting investments in the sector.

Smiths Falls, Ont.-based Canopy will continue to push for a higher share of the Canadian market while it prepares for a U.S. entry, CEO David Klein told Reuters.

“We’re a Canadian company… we’re going to use Canada as that kind of solid home base for us to be able to then bring our capabilities and our brands into the U.S. market as it opens,” Klein said in an interview.

He also reiterated that the company is on track to turn profitable on an adjusted basis this year.

The Supreme deal makes Canopy the owner of four out of the top 10 cannabis brands in Canada, with an estimated 13.6 per cent of the total recreational market share in the country, the companies said.

The deal would give Canopy control of Supreme’s 440,000-square foot cannabis cultivation facility at Kincardine in western Ontario and a West Coast extraction and processing plant at Langley, B.C.

Under the deal’s terms, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and 0.01 cents in cash in exchange for each Supreme Cannabis share held.

Including debt, the deal is valued at $435 million. The two companies said they expect to close their deal by the end of June, pending the usual approvals such as from shareholders and regulators.

— Reporting for Reuters by Arunima Kumar and Shariq Khan in Bangalore. Includes files from Glacier FarmMedia Network staff.

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Canadian pot producers have been under pressure from investors seeking returns as profits remain elusive due to oversupply crimping sales in Canada and overseas expansion bets turning sour.

Canopy said it expects to start generating cash by fiscal 2024 and become operating cash flow positive a year before that, soothing market worries on profitability and sending the company’s shares up two per cent.

Since early last year, Canopy and rivals such as Aphria and Aurora Cannabis have been slashing expenses by shuttering plants, scaling down indoor cultivation and laying off hundreds of employees.

Canopy — whose retail chains include Tweed and Tokyo Smoke, and whose products include the Martha Stewart line of CBD-based goods — is also pinning its hopes on the large U.S. market that is likely to open up, thanks to the Joe Biden administration’s favourable view on the cannabis industry.

Meanwhile, market conditions too have improved. As the pandemic shuttered several businesses and economies contracted, demand for cannabis products such as gummy bears, brownies and drinks, known for their links to relaxation, surged.

Canopy, which sells a range of products from dried flowers to chocolates and drinks mixed with weed, said its net revenue rose 23 per cent in the quarter to $152.5 million.

Its adjusted loss shrank to $68.4 million from $97 million in the third quarter, although asset impairments and one-time restructuring costs led the company to post a net loss of more than $900 million.

Expenses dropped by 15 per cent, to $144.1 million.

— Reporting for Reuters by Arunima Kumar and Shariq Khan in Bangalore.

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The deal gives Leamington, Ont.-based Aphria a U.S. distribution point at a time when cannabis is gaining broader acceptance in that country, with four more states voting to legalize recreational cannabis on Tuesday and the Democrats promising to decriminalize marijuana federally if elected to the White House.

The merger also comes close on the heels of a recent announcement by larger rival Canopy Growth Corp. to launch its pot-infused beverages in key U.S. markets through a partnership with Acreage Holdings next summer.

While Atlanta-based SweetWater does not sell any pot-infused beverages, it is famous for its “420” beer that smells like weed, and Aphria’s CEO Irwin Simon said the deal helps his company raise brand-awareness in the U.S. and capitalize on future legalization at state or federal level.

A host of alcohol brands have taken stakes in cannabis companies, including Corona beer maker Constellation Brands, which backs Canopy, but Aphria’s purchase reverses the trend to be the first large pot producer to enter the beer market.

The deal gives the company access to a growing $29 billion craft brew market, and the company will distribute SweetWater’s 420 line and other beverages in Canada, it said in a statement (all figures US$).

The pot producer expects the merger to be immediately accretive to its earnings per share and is likely to close before the year-end.

Unitholders of SweetWater, which will become a wholly-owned unit of Aphria, will get $250 million in cash and about $50 million in Aphria stock. It will fund the deal with debt, new stock sales and cash on hand.

— Reporting for Reuters by Shariq Khan and Nivedita Balu in Bangalore.

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Canopy’s U.S. shares, currently listed on the New York Stock Exchange, rose over four per cent in extended trading.

Years of high expenses and a lack of profitability have soured investor sentiment toward Canadian pot producers, forcing the companies to cut costs aggressively this year by shuttering facilities, laying off employees and resetting portfolios.

The transition to the Nasdaq gives the company greater cost-effectiveness and better access to tools and services to connect with current and future investors, Canopy CEO David Klein said in a statement.

The change also suggests Canopy — whose Canadian retail brands include Tweed and Tokyo Smoke — had a difficult time raising capital on the NYSE, said Avis Bulbulyan, CEO of cannabis consulting firm Siva Enterprises.

“Nasdaq listings are a bit more volatile and used by fast-growth companies such as tech,” Bulbulyan said.

“Considering Canopy hasn’t really been that stable and doesn’t have much to show for their history, they may have a relatively easier time raising money with a Nasdaq listing,” he said.

Canopy’s shares, which fell three per cent this year through Tuesday’s closing bell, will start trading on the Nasdaq under the ticker symbol ‘CGC’ on Nov. 16.

Aphria completed its move to the Nasdaq in June. Among other major Canadian producers with listings in Canada and the U.S., Hexo Corp. and Aurora Cannabis remain NYSE-listed.

Both were warned by the exchange’s operator about a possible delisting earlier this year after their share prices slid below US$1.

Aurora’s shares rose above the threshold after it undertook a reverse stock split, while Hexo has detailed plans to carry out a similar consolidation around December.

— Shariq Khan reports on North America’s resource and energy sectors for Reuters from Bangalore.

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Nearly 11 months after regulators allowed their sales, very few brands have been able to reach shelves.

Canada at the start of this year allowed sales of so-called ‘Cannabis 2.0’ products, which include edibles, vapes and drinks. The products have been a big hit with customers during coronavirus-induced lockdowns, but producers have struggled to maintain timelines for the launch of the THC beverages.

Analysts and industry insiders had eagerly anticipated these beverages, hoping they would attract large swathes of the public to pot from booze, and bring back investor dollars after the industry fell out of favor due to a lack of profitability.

Common production challenges include short shelf-life, maintaining a consistent taste, inconsistent potency, and the length of time it takes to achieve the desired “high,” said Karan Wadhera, managing partner at cannabis venture capital firm Casa Verde Capital.

“There are also high production costs, expensive distribution, and a lack of dispensary infrastructure to intake and display the products,” he added, referring to cannabis shops without loading docks or refrigerators.

The COVID-19 pandemic has made funds even more scarce for a sector that has disappointed the market with missed financial targets and many producers forced to withdraw dollars from developmental products that promise future profits to focus on maintaining the core business.

“This is certainly true of Canadian LPs (licensed producers) who have had massive layoffs and reductions of production,” said Medical Marijuana Inc. CEO Stuart Titus.

“The drop-off in investor capital has also had a negative effect on product development, so the supply of effective cannabis-based beverages remains relatively small,” he added.

Getting it right

Technical issues involving basic chemistry have also slowed bringing some of these THC-infused beverages to market.

Most cannabinoids are insoluble in water, explained Joshua Swider, co-founder and CEO of Infinite Chemical Analysis Labs (InfiniteCAL).

To overcome that issue, companies use emulsions. But even if they can make an emulsion that gets the high-inducing cannabinoids to properly mix with the beverage, maintaining that mix is itself a challenge.

InfiniteCAL said its tests show some beverages can degrade in as little as a few days, leaving the THC that induces the desired high stuck to the can liner lowering the drink’s potency.

“Everyone has really great ideas in this market, but people are coming to find that actually executing the idea is much more difficult,” said Narmin Jarrous, vice president at Exclusive Brands, a Michigan-based cannabis retailer.

Despite facing its own challenges and delays putting beverages on the shelves, Canopy Growth Corp., the largest pot producer by market value, has established a strong foothold.

The company had planned to launch its drinks in January, when sales were first authorized in Canada, but scaling up production and other issues delayed their introduction.

With backing from Corona beer-maker Constellation Brands, Canopy’s products did hit the market in March, well before major rivals got there. It now controls more than 70 per cent of the cannabis-infused drinks market, a company spokeswoman said.

The company has sold close to two million cans of its THC-infused beverages in Canada since March. The top three cannabis beverages in Canada are all Canopy products, the spokeswoman added.

CEO David Klein, a Constellation veteran who took on the top role at Canopy in December, told investors in August the company expected to double its drinks output for that month after having already doubled it the previous month.

The company announced plans this month to begin selling the products in the U.S. next summer, initially launching THC-beverages in the fast-growing California and Illinois markets through a partnership with New York-based Acreage Holdings.

“Given the choice of a traditional alcoholic beverage and a THC-infused beverage, I believe that THC beverages would rival alcoholic beverages for their popularity with consumers,” Titus said.

— Shariq Khan reports on North America’s resource and energy sectors for Reuters from Bangalore.

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