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Dive Brief:
- Canopy Growth said it would seek bankruptcy protection for its sports drink brand BioSteel and look to sell the beverage as the cannabis company aims to curtail its spending and improve its financial position.
- Canopy Growth, which had been reviewing strategic options for BioSteel, said the unit was a significant drag on the company’s profitability and cash flow. It represented approximately 60% of its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss in the first quarter of its 2024 fiscal year.
- Canopy and its competitors have struggled in recent months with an oversupply of cannabis and mounting losses at their businesses. But there is optimism that a decision by the White House to review how cannabis is classified could eventually stoke demand and availability for food and beverage products containing the ingredient.
Dive Insight:
Once the darling of the red-hot cannabis space, Canopy Growth has recently been fighting for its survival.
The Canadian company has shed hundreds of jobs, shut down and sold its Smiths Falls, Ontario, headquarters, and implemented other cost-saving measures. In June, Canopy Growth’s auditor disclosed it had “substantial doubt about [Canopy’s] ability to continue as a going concern.”
In seeking bankruptcy for BioSteel, Canopy Growth is shedding a money-losing brand that has been a major obstacle in its efforts to become profitable. BioSteel also is an outlier in Canopy’ Growth’s otherwise cannabis-intensive business.
Canopy Growth said its financial position is expected to be strengthened through the immediate removal of the cash expenditures associated with funding the BioSteel and the potential cash proceeds from a sale of the brand’s assets.
BioSteel posted C$32.5 million ($24 million) in sales in the company’s fiscal first quarter compared to C$13.7 ($10.4 million) a year earlier, according to Canopy Growth. The ready-to-drink sports beverage leans into popular trends, including being sugar-free, having premium ingredients and natural flavors, and electrolytes to support physical activity.
David Klein, Canopy Growth’s CEO, said the bankruptcy and sale of BioSteel is a “major milestone” in the company’s goal to achieve positive adjusted EBITDA.
“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,” Klein said.
Despite the uncertain legislative situation in the U.S., demand for cannabis-infused food and beverage products continues to grow It is projected to expand at a compound annual growth rate of 19.32% by 2027, according to TechNavio. Given Canopy Growth’s precarious financial position, it had to move aggressively to curtail its spending even if it genuinely believed in BioSteel’s future.
Klein told MarketWatch during the summer that BioSteel “is a great brand,” but that it requires “a lot of investment to grow” and it’s not the best fit for a cannabis company.
In June, Canopy Growth disclosed it was being investigated by the U.S. Securities and Exchange Commission after the company uncovered “misstatements” related to sales at BioSteel. Canopy Growth later trimmed about C$10 million ($7.4 million) in net sales for the year ended March 31, 2022, or about 2% of total sales.
