Canadian LPs cutting operational costs to achieve long-term profitability

Canada’s cannabis industry has had quite a hard time to become profitable, leading many companies to reduce operational cost. Indeed, the beginning of the new decade came along with a swing of layoffs by some major producers. Most recently, the companies announcing corporate restructuring were Tilray, Supreme Cannabis and Aurora, the latter being at the center of much attention since a few months. Indeed, Aurora has not shared much information over the past period, and rumors have been going around saying that the company wasn’t navigating ‘placid’ waters. So, it didn’t come as much of a surprise when Aurora announced the staff layoffs, the resigning of the CEO, and the writing down on a number of ongoing projects. However, Aurora represents only the most renowned example of the reality check that many companies have been going through recently.

At the end of last week, some major cannabis producers have released 2020 Q2 reports, recording a few losses.

Aurora
Edmonton-based company Aurora has recorded a net loss of C$1.3 billion in the fiscal second quarter that ended on Dec. 31. The company motivated its slowing down with the lack of retail locations in Canada, and the shifting of consumer demands. Michael Singer, chief executive, remarked: “It’s important to remind ourselves that the Canadian consumer market is just over a year old and will take time to develop, but we remain extremely bullish on the long-term potential of the Canadian medical and consumer markets, as well as established international medical markets.”

Supreme Cannabis: 15% of staff laid off
Supreme Cannabis too released the financial statement of Q3 2020. Just a few days ago, the company has announced a new operating structure to support long-term growth, which meant the layoff of 15% of the staff. Just like Aurora, the company has recorded slower than expected recreational sales, and pointed at the lack of retail outlets in Canada as one of the main reasons of the slowdown.

Canopy Growth: $124.17 million loss
Additionally, Canopy Growth has issued its financial statement, reporting a $124.17 million loss. The new Canopy Growth CEO, David Klein, said that the company has still “a lot of work to do”, but it has the capacity and the resources to do it. He said: “We have to align our resources and investments with the size and growth rate of the market as it exists today.” At the same time, analysts expected a bigger loss.

Also, the investment branch of Canopy Growth, Canopy Rivers, is to be added to the list of companies releasing financial statements which recorded quite a substantial loss. The company stated that it had a net loss of $2.7 million, compared to a net income of $1.4 million. On top of this, Canopy Rivers has withdrawn its full year guidance because of the changing landscape of the current industry and market, with licensing delays, scaling-up of operations, and a decline in wholesale prices.

Prospects
However, the industry is still young. As Nevin McDougall, A&L Laboratories President and CCO, pointed out in an interview: "There was a lot of initial excitement, infrastructures have been built exceeding the capacities of retail distribution channels. We are in a period of adjustment now. We need to get the right supply/demand balance in position, especially considering the introduction of innovations such as edibles, beverages, and infused products.” And thus it seems as if companies are now getting ready for this long-term profitability. 


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