Canopy Growth Corp 8-K, filed Sep 14, 2023
Canopy Growth Corp (CGC)
About this 8-K
Canopy Growth Corp filed this 8-K on September 14, 2023, reporting on events of September 13, 2023.
Items reported
- Item 2.05: Exit or restructuring costs
- Item 2.06: Material impairment
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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| Item 2.05 | Costs Associated with Exit or Disposal Activities. |
On September 13, 2023, the Board of Directors (the “Board”) of Canopy Growth Corporation (the “Company”) authorized a plan to reduce the Company’s cash outlay by ceasing to fund the operations of BioSteel Sports Nutrition Inc. (“BioSteel Canada”) and terminating, effective, as applicable, commencing September 14, 2023 and on an ongoing basis, 181 employees who were employed by the Company or Canopy Growth USA, LLC (“Canopy Growth USA”), a wholly-owned subsidiary of the Company, that provided services to any of BioSteel Canada or its two U.S. affiliates, BioSteel Sports Nutrition USA LLC (“BioSteel USA”) and BioSteel Manufacturing LLC (“BioSteel Manufacturing” and collectively with BioSteel Canada and BioSteel USA, the “BioSteel Entities”). The Company owns approximately 90% of the outstanding shares of BioSteel Canada.
Following such decision, the Board of Directors of BioSteel Canada authorized the commencement of proceedings under the Canadian Companies’ Creditors Arrangement Act (the “CCAA”). BioSteel Canada has obtained an order for creditor protection from the Ontario Superior Court of Justice (Commercial List) (the “Court”) under the CCAA which provides for, among other things: (i) a stay of proceedings in favor of the BioSteel Entities; and (ii) the appointment of KSV Restructuring Inc. as monitor of BioSteel Canada. The Company remains BioSteel Canada’s largest creditor and shareholder and anticipates receiving its proportionate share of any recoveries in the CCAA process. It is anticipated that management of the BioSteel Entities will conduct an orderly sales process under the supervision of the Court.
The Board authorized the Company to cease funding BioSteel Canada following a previously announced comprehensive review of strategic options for the Company of the BioSteel Entities, including a potential sale. The Board considered that while the business of the BioSteel Entities has experienced year-over-year revenue growth, the BioSteel Entities were reliant on the Company for ongoing financing, which resulted in a significant cash burden to the Company and contributed to the negative operating cash flow for the Company on a consolidated basis. The Board’s decision to cease funding BioSteel Canada is consistent with the Company’s transformation to a simplified, asset-light operating model and focus on its core operations.
The Company expects to incur material costs in connection with the CCAA process for the BioSteel Entities, including costs associated with workforce reductions since the entire workforce thereof was employed by the Company and will receive termination benefits and severance, as applicable. The Company expects to incur charges of between CDN$15-20 million, of which the Company expects approximately CDN$3.7 million will consist of payroll-related charges to be paid by the Company or Canopy Growth USA. The remaining charges are primarily attributable to restructuring costs that the Company expects will be incurred by BioSteel Canada. The Company expects the aforementioned charges to be substantially recorded in the second and third quarters of the Company’s fiscal year ending March 31, 2024. The Company expects associated annual cash savings in excess of CDN$100 million.
The charges the Company expects to incur in connection with this action are preliminary estimates and are subject to a number of assumptions and risks, and actual results may differ materially. The Company may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, this action.
| Item 2.06 | Material Impairments. |
The information provided in Item 2.05 of this Current Report on Form 8-K (this “Current Report”) is incorporated by reference into this Item 2.06. In conjunction with the CCAA process, the Company expects to incur an asset impairment charge of between approximately CDN$100-$130 million in the second quarter of fiscal year 2024 under generally accepted accounting principles.
The asset impairment charges the Company expects to be incurred in connection with this action are preliminary estimates and are subject to a number of assumptions and risks, and actual results may differ materially. The Company may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, this action.
| Item 7.01 | Regulation FD Disclosure. |
On September 14, 2023, the Company issued a press release to announce the aforementioned actions in Item 2.05 of this Current Report. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information set forth and incorporated by reference in Item 7.01 of this Current Report, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information set forth and incorporated by reference in Item 7.01 of this Current Report, including Exhibit 99.1 attached hereto, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit No. | Exhibit Description | |
| 99.1 | Press Release dated September 14, 2023. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Notice Regarding Forward-Looking Statements
This Current Report contains “forward-looking statements” and “forward-looking information” within the meaning of applicable U.S. and Canadian securities laws (collectively, “forward-looking statements”), which involve certain known and unknown risks and uncertainties. Forward-looking statements predict or describe our future operations, business plans, business, performance and investment strategies. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “strategy,” “estimate,” “expect,” “project,” “projections,” “forecasts,” “plans,” “seeks,” “anticipates,” “potential,” “proposed,” “will,” “should,” “could,” “would,” “may,” “likely,” “designed to,” “foreseeable future,” “believe,” “scheduled” and other similar expressions and include statements relating to BioSteel Canada’s intention to complete proceedings under the CCAA; the outcome of the CCAA proceedings, the effects on BioSteel Manufacturing and BioSteel USA and any potential recovery for its stakeholders, including the Company; and the impact on the Company’s financial position, including the potential cash proceeds from the sale of BioSteel Canada’s assets. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive risks, financial results, results, performance or achievements expressed or implied by those forward-looking statements and the forward-looking statements are not guarantees of future performance. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Such risks and uncertainties include, but are not limited to, the ability of the BioSteel Entities to complete any future potential transactions in connection with the CCAA proceedings and the terms and conditions thereof; risks relating to the CCAA process, including uncertainty of any residual value for stakeholders of the BioSteel Entities under the CCAA process; damage to the Company’s reputation; uncertainties related to any legal challenges; negative operating cash flow; uncertainty of additional financing; use of proceeds; volatility in the price of the Company’s common shares; inherent uncertainty associated with projections; and expectations regarding future investment, growth and expansion of operations. A discussion of some of the material factors applicable to the Company can be found under the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) and with applicable Canadian securities regulators, as such factors may be further updated from time to time in its periodic filings with the SEC and with applicable Canadian securities regulators, which can be accessed at www.sec.gov/edgar and www.sedar.com, respectively. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Current Report and in the filings. Any forward-looking statement included herein is made as of the date of this Current Report and, except as required by law, the Company disclaims any obligation to update or revise any forward- looking statement. Readers are cautioned not to put undue reliance on any forward-looking statement. Forward-looking statements contained in this Current Report are expressly qualified by this cautionary statement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CANOPY GROWTH CORPORATION | ||
| By: | /s/ Judy Hong | |
| Judy Hong | ||
| Chief Financial Officer | ||
Date: September 14, 2023
Exhibit 99.1
Canopy Growth to Cease Funding BioSteel Business Unit Furthering Business Transformation and Focus on North American Cannabis Leadership
BioSteel filing immediately eliminates significant
cash burn for Canopy Growth and provides for an
orderly realization of value of BioSteel’s assets through a sale process
As the senior secured lender to BioSteel, Canopy Growth expects to recover proceeds from the anticipated sale process
Management reaffirms its expectation to achieve positive Adjusted EBITDA in all remaining business units exiting FY2024, as the Company focuses on driving growth in its Canadian and U.S. cannabis businesses to position itself as an industry leader in North America
SMITHS FALLS, ON – September 14, 2023 – Canopy Growth Corporation (“Canopy Growth” or the “Company”) (TSX: WEED) (NASDAQ: CGC) today announced that it has ceased funding BioSteel Sports Nutrition Inc. (“BioSteel”) and that BioSteel has commenced proceedings under the Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court of Justice (Commercial List) (“CCAA Court”) and will seek recognition of that proceeding under Chapter 15 of the United States Bankruptcy Code to give full force and effect to the orders made in the CCAA proceeding in the United States, including a stay of proceedings.
As part of its efforts to simplify its business and reduce cash burn, Canopy Growth previously announced that it was reviewing strategic options for the Company’s BioSteel business unit, including a potential sale of the business unit. BioSteel’s business was a significant drag on Canopy Growth’s profitability and cash flow, representing approximately 60% of the Company’s Q1 FY2024 Adjusted EBITDA loss. The decision by BioSteel to seek creditor protection means that Canopy Growth will limit the further funding obligations in respect of 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.
Canopy Growth’s financial position is expected to be further strengthened through the immediate removal of the cash expenditures associated with funding the BioSteel business unit and the potential cash proceeds from the orderly sale of BioSteel’s assets. Further, the Company anticipates the removal of the previously identified material weakness related to the BioSteel business segment upon disposition. In addition, with BioSteel’s operating loss and cash burn eliminated, Canopy Growth reiterates its expectation to achieve positive Adjusted EBITDA across its remaining business units exiting FY2024.
“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. 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,” said David Klein, Chief Executive Officer.
Recent Transformation Plan Highlights
| · | Since July 1, 2023, reduction of the Company's overall debt by approximately CAD $349 million, with further reductions totalling approximately CAD $95 million expected over the next two quarters.1 |
| · | 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 (“Canopy USA”) continue to demonstrate momentum, strengthening and expanding their businesses and Canopy Growth continues to work with regulators to advance its novel structure. |
BioSteel has obtained an initial order from the CCAA Court which provides for, among other things: (i) a stay of proceedings in favor of BioSteel and its two U.S. affiliates, BioSteel Sports Nutrition USA LLC and BioSteel Manufacturing LLC; and (ii) the appointment of KSV Restructuring Inc. as monitor of BioSteel.
The CCAA process will allow the BioSteel business to maximize the value of its assets through a court supervised sales process. Canopy Growth remains BioSteel Canada’s largest creditor and shareholder and anticipates receiving its proportionate share of any recoveries in the CCAA process.
1 This number assumes that the convertible debentures issued on July 14, 2023 with an aggregate principal amount of approximately $40.4MM are settled by the Company in common shares, which settlement is only possible in the event that shareholders of the Company approve such issuance at a meeting of shareholders on September 25, 2023.
Non-GAAP Measures
Adjusted EBITDA is a non-GAAP measure used by management that is not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Adjusted EBITDA is calculated as the reported net income (loss), adjusted to exclude income tax recovery (expense); other income (expense), net; loss on equity method investments; share-based compensation expense; depreciation and amortization expense; asset impairment and restructuring costs; restructuring costs recorded in cost of goods sold; and charges related to the flow-through of inventory step-up on business combinations, and further adjusted to remove acquisition-related costs. Asset impairments related to periodic changes to the Company’s supply chain processes are not excluded from Adjusted EBITDA given their occurrence through the normal course of core operational activities.
Contact
Media Contact:
Laura Nadeau
Manager, Communications
media@canopygrowth.com
Investor Contact:
Tyler Burns
Director, Investor Relations
Tyler.Burns@canopygrowth.com
About Canopy Growth
Canopy Growth is a leading North American cannabis and consumer packaged goods (“CPG”) company dedicated to unleashing the power of cannabis to improve lives. Through an unwavering commitment to our consumers, Canopy Growth delivers innovative products with a focus on premium and mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space. Canopy Growth’s CPG portfolio features targeted 24-hour skincare and wellness solutions from This Works, gourmet wellness products by Martha Stewart CBD, and category defining vaporizer technology made in Germany by Storz & Bickel.
Canopy Growth has also established a comprehensive ecosystem to realize the opportunities presented by the U.S. THC market through its rights to Acreage Holdings, Inc., a vertically integrated multi-state cannabis operator with principal operations in densely populated states across the Northeast, as well as Wana Brands, a leading cannabis edible brand in North America, and Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology.
Beyond our world-class products, Canopy Growth is leading the industry forward through a commitment to social equity, responsible use, and community reinvestment—pioneering a future where cannabis is understood and welcomed for its potential to help achieve greater wellbeing and life enhancement.
For more information visit www.canopygrowth.com
References to information included on, or accessible through, our website do not constitute incorporation by reference of the information contained at or available through our website, and you should not consider such information to be part of this press release.
Notice Regarding Forward Looking Statements
This news release contains "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities legislation. Often, but not always, forward-looking statements and information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements or information contained in this news release. Examples of such statements and uncertainties include statements with respect to BioSteel’s intention to complete proceedings under the CCAA; the outcome of the CCAA proceedings and any potential recovery for its stakeholders, including Canopy Growth; the impact on Canopy Growth’s financial position, including the potential cash proceeds from the sale of BioSteel’s assets; the anticipated removal of the previously identified material weakness related to the BioSteel business segment; expectations regarding the potential success of, and the costs and benefits associated with the Company’s transformation plan, including the completion of the Company’s sale of its Hershey facility; the assumption that the convertible debentures issued on July 14, 2023 are settled in common shares of the Company; the occurrence and outcome of the Company’s restructuring initiatives and Canopy USA’s expected acquisition of U.S. THC companies; segment and business focuses for FY2024, including delivering positive Adjusted EBITDA exiting FY2024 and expectations for other economic, business, and/or competitive factors.
Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including BioSteel’s ability to complete any future potential transactions in connection with the CCAA proceedings and the terms and conditions thereof; risks relating to the CCAA process, including uncertainty of any residual value for BioSteel’s stakeholders under the CCAA process; negative operating cash flow; uncertainty of additional financing; use of proceeds; volatility in the price of the Company’s common shares; inherent uncertainty associated with projections; expectations regarding future investment, growth and expansion of operations; regulatory and licensing risks; changes in general economic, business and political conditions, including changes in the financial and stock markets and the impacts of increased rates of inflation; legal and regulatory risks inherent in the cannabis industry, including the global regulatory landscape and enforcement related to cannabis; additional dilution; political risks and risks relating to regulatory change; risks relating to anti-money laundering laws; compliance with extensive government regulation and the interpretation of various laws regulations and policies; public opinion and perception of the cannabis industry; and such other risks contained in the public filings of the Company filed with Canadian securities regulators and available under the Company’s profile on SEDAR at www.sedar.com and with the Securities and Exchange Commission through EDGAR at www.sec.gov/edgar, including under the heading “Risk Factors” in the Company’s annual report on Form 10-K for the year ended March 31, 2023 and its subsequently filed quarterly reports on Form 10-Q.
In respect of the forward-looking statements and information, the Company has provided such statements and information in reliance on certain assumptions that they believe are reasonable at this time. Although the Company believes that the assumptions and factors used in preparing the forward-looking information or forward-looking statements in this news release are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. Should one or more of the foregoing risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The forward-looking information and forward-looking statements included in this news release are made as of the date of this news release and the Company does not undertake any obligation to publicly update such forward-looking information or forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities laws.