Canopy Growth Corp. has ceased funding to its BioSteel Sports Nutrition Inc. business unit and commenced bankruptcy proceedings, the embattled Canadian cannabis producer announced Sept. 14.
Canopy has obtained creditor protection for the BioSteel business after seeking bankruptcy under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice, the company announced, and will seek recognition of that proceeding under Chapter 15 of the United States Bankruptcy Code.
The announcement describes BioSteel’s business as “a significant drag” on Canopy’s profitability and cashflow. The company attributed approximately 60% of its adjusted EBITDA loss in the first quarter of fiscal year 2024 to the BioSteel business unit.
Canopy completed an all-cash transaction in October 2019 to purchase a majority stake in BioSteel, which produces sports nutrition products. At the time, Canopy viewed the move as a way to enter the sports nutrition and hydration market, and to potentially integrate CBD into future product offerings.
“BioSteel has a reputation for being a best-in-class provider of natural sports nutrition products and all of its products are well positioned to benefit from the increasing trend of plant-based and all-natural products, preferred not only by professional athletes, but active consumers as well,” Canopy Growth then-CEO Mark Zekulin said at the time. “This acquisition allows us to enter the sports nutrition space with a strong and growing brand as we continue towards a regulated market of food and beverage products that contain cannabis. We view the adoption of CBD in future BioSteel offerings as a potentially significant and disruptive growth driver for our business.”
As those aspirations largely failed to become reality, Canopy has been “reviewing strategic options for the company’s BioSteel unit” as part of the company’s efforts to “simplify its business and reduce cash burn,” according to Thursday’s press release.
The bankruptcy filing “will limit the further funding obligations in respect to the BioSteel business unit, which is consistent with Canopy Growth’s transformation to a simplified, asset-light operating model and focus on its core cannabis operations,” according to the release.
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“Canopy Growth has marked yet another major milestone in our transformation plan, as while BioSteel’s business has shown significant year-over-year revenue growth, and we believe the brand remains an attractive asset, it does not align with Canopy Growth’s cannabis-focused, asset-light strategy,” Canopy CEO David Klein said in a public statement. “We have repeatedly demonstrated that we will take decisive action to enhance our profitability and ensure we are focused and positioned to be a leader in the North American cannabis sector.”
That decisive action has included the sale of Canopy’s Canadian dispensaries and Tokyo Smoke brand to OEG Retail Cannabis (OEGRC) in September 2022; OEGRC acquired 23 of Canopy’s Tweed and Tokyo Smoke stores in Manitoba, Saskatchewan, and Newfoundland and Labrador last year, while 420 Investment Ltd. (FOUR20) entered into an agreement to acquire five of Canopy’s retail locations in Albera.
“We are taking the next critical step in advancing Canopy as a leading premium brand-focused CPG cannabis company while furthering the company’s strategy of investing in product innovation and distribution to drive revenue growth in the Canadian recreational market,’’ Klein said of the transactions at the time. “By realizing these agreements with organizations that possess proven cannabis retail expertise, we are providing continuity for consumers and team members. Through the best-in-class retail leadership that OEGRC and FOUR20 have demonstrated, they will continue to serve Canadian consumers with the high-quality in-store experiences that are essential for success in a new industry.”
In its announcement Thursday, Canopy outlined the following recent highlights of its transformation plan:
- Since July 1, 2023, reduction of the company’s overall debt by approximately CAD $349 million, with further reductions totaling approximately CAD $95 million expected over the next two quarters.
- Agreement to sell Hershey Drive facility for CAD $53 million. Upon the completion of the sale, Canopy Growth will have sold a total of seven properties for an aggregate gross amount of approximately CAD $155 million since April 1, 2023.
- Achieved cost reduction of CAD $47 million in Q1 FY2024, bringing total cost reductions to CAD $172 million since the beginning of FY2023.
- Management continues to expect restructuring initiatives announced in FY2023 to deliver combined Selling, General & Administrative Expense and Cost of Goods Sold reduction of CAD $240 million to CAD $310 million by the end of FY2024.
- U.S. THC companies that are expected to be acquired by Canopy USA LLC continue to demonstrate momentum, strengthening and expanding their businesses and Canopy Growth continues to work with regulators to advance its novel structure.
