Pot producer Canopy Growth to stop expanding in Canada

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Reuters — Canopy Growth Corp. on Thursday reported a wider-than-expected quarterly loss on soaring expenses and said it would not make any large investments to expand in Canada amid surplus supply and tepid demand for weed and weed products.

The decision to hold expansion plans follows a wave of enthusiastic spending by marijuana companies to scale up production, expand in new markets and on research after Canada’s legalization of recreational weed last year.

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However, demand has not kept up with expectations as the country struggles with a slow rollout of retail stores among other problems.

Canada’s recent legalization of derivative products, dubbed Cannabis 2.0, has also failed to generate much hype and estimates for growth have become more cautious.

“The last two quarters have been challenging for the Canadian cannabis sector as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations, and Cannabis 2.0 products are yet to come to market,” CEO Mark Zekulin said.

Smiths Falls, Ont.-based Canopy also took a restructuring charge of $32.7 million in the second quarter to account for returns, return provisions and price cuts for its softgel and oil products.

Suppliers like Canopy enter agreements with retailers and depending on the terms of the contract, buyers can return the product if it does not meet the expected quality or pay less if potency is below agreed ranges.

Sundial Growers ran into problems earlier in August when tons of weed were returned by a buyer because of quality issues. In fact, Tilray CEO said on Tuesday the company regularly inspects crops before buying them.

Canopy also took a $15.9 million charge related to its inventory. It harvested 40,570 kg of weed in the quarter, but sold only 10,913 kg and kg-equivalents of cannabis products.

Adjusted core loss of $155.75 million was wider than analysts’ expectations of $92.9 million, as operating expenses surged 48.2 per cent.

On an adjusted basis, net loss was 96 cents per share, above analysts’ expectation of a loss of 40 cents, according to Refinitiv IBES data.

Net revenue rose more than threefold, to $76.6 million.

— Reporting for Reuters by Shanti S Nair in Bangalore.

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