CGC is shrinking
Canopy Growth Corp. is laying off 75 people in North America and may cut dozens of additional positions in Denmark as the Canadian cannabis producer completes a year-long cost-cutting review of its operations. Most of those affected workers were employed at Canopy's headquarters in Smiths Falls, Ont. "As part of the final stage of Canopy Growth’s end-to-end global strategic review, staffing adjustments were made within our North American operations team earlier today," the spokesperson told BNN Bloomberg in an emailed statement Tuesday. "Employees at the Denmark production facility have also been informed of the proposal to cease operations at the site based on the company’s ability to serve global medical markets with existing Canadian production capacity. According to the article, "One prominent member of Canopy’s European team has already moved on, however, as Jens Markussen, who had served as head of the company’s Denmark operations, announced on Tuesday his new role as head of the production for DanCann Pharma A/S, another Danish medical cannabis producer." The company's decision to supply the European medical cannabis market (Germany) through a subsidiary that will distribute marijuana produced in Canopy’s Canadian facilities is a retrenchment from Europe, not an expansion. Bottom line, the cuts are needed to deliver on the "path to profitability" the company promised in the coming fiscal year.
Curaleaf goes shopping in Europe (CURLF)
The Canadian LP'S are cutting back in Europe, opening the door for the more profitable US cannabis companies. Curaleaf announced it is acquiring the European cannabis company Emmac Life Sciences. 15% of the payment will be funded in cash, and the remaining 85% will be funded through Curaleaf subordinate voting shares. Emmac Life Sciences is a vertically integrated European cannabis company operating in the U.K., Germany, Italy, Spain, and Portugal. CEO Boris Jordan said, "The European cannabis market has the potential to exceed the U.S. cannabis market over the long-term and will help fuel our growth for years to come." According to Curaleaf, the current size of the recreational market in Europe is over $1B but is expected to reach $5B over the next three years. In comparison, U.S. sales of legal cannabis were $17.5B in 2020. Emmac has a cultivation facility in Portugal that is claimed to be a leader in cannabis flower production cost. Curaleaf raised $290M in debt and equity in January. This transaction puts also puts a spotlight on CLVR with operations in Columbia and Portugal.
Curaleaf Earnings
CURLF reported Revenue of $230.3M vs FactSet $238.3M up 205% YoY and 26% sequentially. Adjusted EBITDA $53.8M vs FactSet $51.5M up 289% YoY and 27% sequentially. Full-year revenue growth was 183% in 2020 vs. 186% in 2019. The gross margin on cannabis sales was 47.8% in 4Q20 vs. 49.7% in 3Q20 and 42.9% in 1Q20. Cash and equivalents have stood at $73.5M as of 2020 year-end compared to ~$42.3M from a year ago and $84.6M in 3Q20. Curaleaf also announced the completion of the Alternative Therapies acquisition, which obtained regulatory clearance in October 2020. As you can see from the trending topics below, the Coronavirus created some "softness" in the quarter, but that is one time. Everything else in the quarter was Green. On legalization and interstate commerce, his timeline is consistent with our view. The Executive Chairman said, "is probably closer to the end of the current administration rather than the beginning. We think that if the Democrats can gain a bigger majority in the Senate, they're likely to get that legislation through. We don't think it happens in the next 2 years. We think we get something addressing social equity issues and safe banking over the next 12 months. I don't think, though, that we get full legalization in this period of time. They just don't have the votes."
Other interesting comments:
- The flower will drop to 25-50% of the market, thus creating highly formulated products.
- Shifting some cultivation to outdoor to lower costs; expanding capacity in newly adult-use states
- European medical market is currently $1.0 billion going to $5.0 billion in three years
- Expanding R&D to focus on formulated products.
