Canopy Growth lands creditor protection for BioSteel business
Tired of its sports drink business weighing on its books, Canopy Growth Corp. is making moves to shed the division.
The Smiths Falls, Ont., cannabis company announced Thursday that it had obtained creditor protection from the Ontario Superior Court of Justice for BioSteel Sports Nutrition Inc. and intends to seek permission to sell the business.
Canopy sought creditor protection because it said it no longer has access to funding. It described BioSteel as a “significant drag” on its profitability and cash flow, saying about 60% of the company's adjusted EBITDA loss was attributable to BioSteel.
Canopy chief executive David Klein says the moves were a “major milestone.”
“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,” he says in a news release. “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.”
BioSteel's creditor protection status marks another blow for the beverage company Canopy scooped up a 72% stake in back in October 2019 in a bid to diversify. The deal came with a pathway to 100% ownership.
BioSteel was started by entrepreneur John Celenza and hockey star Michael Cammalleri in Toronto in 2009 and quickly became ubiquitous on arena and sports field benches through partnerships with the Toronto Raptors, the Toronto Blue Jays, the National Hockey League and the U.S. Soccer Federation.
But those relationships were costly.
Canopy reports that advertising and promotional investments in BioSteel, including costs related to its NHL sponsorship, had increased by about $12 million in its most recent quarter. And in recent months, BioSteel had also encountered accounting problems. Canopy promised in May to refile three of its past quarterly financial statements because of misstatements linked to BioSteel it warned “should no longer be relied upon.”
By June, Canopy had made management changes and parted ways with some BioSteel staff.
Canopy's Canadian creditor protection in conjunction with a Chapter 15 case it intends to launch to address its American assets will limit Canopy's further funding obligations from BioSteel.
“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,” Canopy says in a news release announcing the changes.
Investors appeared pleased with the news, pushing the company's share price up by 26 cents or almost 17% up to $1.82 in mid-morning trading.
Canopy hopes its move away from BioSteel will complement the parent company's efforts over the last few years to streamline its business through layoffs, facility closures and a more detailed look at expenses. When it sells the historic Hershey Drive in Smiths Falls for $53 million back to the chocolate company that once owned the building, Canopy will have sold seven properties for an aggregate gross amount of about $155 million since April 1.
Canopy has also reduced its overall debt by $349 million since the start of July and expects another $95 million in reductions over the next two quarters.
