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The Canadian Press
Tara Deschamps
Published June 22, 2023 • read for 3 minutes
Staff work in a marijuana grow room that can be viewed at the new visitor center at Canopy Growth’s Tweed facility in Smiths Falls, Ontario. on Thursday, August 23, 2018. Photo by Sean Kilpatrick /THE CANADIAN PRESS
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The chief executive of Canopy Growth Corp. said the company has made management changes and parted ways with a number of employees as it continues to review its BioSteel business after discovering “material misstatements” in the sports drink unit’s previous financial records.
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“Based on the results of the review, we will be implementing several corrective actions to strengthen our controls for the BioSteel business,” said David Klein, CEO of the Smiths Falls, Ont. Based cannabis company, during a Thursday call with analysts.
“We felt it was important to act quickly to provide stability to the company at this critical time, so we have left several members of the BioSteel leadership team and are considering all available legal remedies, including lawsuits to recover damages and costs related to with and arising from the findings of the BioSteel review.”
His comments came after Canopy promised in May to resubmit three of its past quarterly financial statements due to false statements related to BioSteel, a brand of nutritional supplements aimed at athletes.
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The inaccuracies were in the filings for the first, second and third quarters of 2022 and include sales information from that period that Canopy says “can no longer be relied upon” in its regulatory filings.
It discovered the misstatements when it prepared its financial results for the fiscal year ended March 31, and determined on May 4 that there were errors in its filings after reviewing BioSteel’s results with independent outside consultants and forensic accountants.
Canopy now says the sales anomalies found are related to BioSteel’s “timing and amount of revenue recognition.”
The company revealed new details about the anomalies when it announced its fourth-quarter and full-year results on Thursday. Canopy’s fourth-quarter net loss was $648 million, $59 million more than the year-earlier loss.
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It attributed much of the loss to $164 million in asset impairment and restructuring costs, but says those costs were partially offset by improved gross margins.
The adjusted numbers for BioSteel resulted in a decrease of approximately $10 million in net sales for the company’s fiscal year 2022, or approximately two percent of total net sales.
For the nine months ended December 31, 2022, Canopy said the adjustment resulted in a decrease of approximately $14 million in net sales or four percent of total consolidated sales.
“Nevertheless, we have great confidence in the BioSteel brand, which saw a 101 percent increase in revenue in fiscal (2023),“ said Klein.
Canopy also noted that BioSteel continues to gain market share in Canada, especially through NHL partnerships.
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Meanwhile, Canopy is moving forward with a company-wide transformation plan that includes the departure of 800 employees — about 35 percent of its workforce — in February.
At the time, it was also planning to sell 1 Hershey Dr. in Smiths Falls, Ont., to finish off the flagship facility where chocolate company Hershey once had a factory and move the post-production floral operation to a building across the street.
Canopy said it would stop sourcing flowers from its facility in Mirabel, Que., which is owned and operated by Les Serres Vert Cannabis Inc., a joint venture between the company and Les Serres Stephane Bertrand Inc., a operator of tomato greenhouses.
Canopy previously purchased pot from the joint venture, but will discontinue that activity and now move to a more flexible sourcing strategy to ensure Quebec products are brought to consumers in the province.
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Consolidation was also planned for his Kincardine, Ont. and Kelowna, BC sites.
Canopy’s net sales for the period ended March 31 totaled $88 million, 14 percent lower than sales reported a year earlier.
Canopy’s adjusted loss for the quarter was $96 million, an improvement of $36 million from negative adjusted earnings before interest, taxes, depreciation and amortization a year earlier.
This report from The Canadian Press was first published on June 22, 2023.
Companies in this story: (TSX:WEED)
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