Canopy Growth's BioSteel sports drink unit files for bankruptcy in a move to stem cash burn
By Steve Gelsi
Canopy Growth continues to focus on its core cannabis business by shedding its sports-drink unit BioSteel.
Canopy Growth Corp. is announcing a bankruptcy filing for its BioSteel sports drink in Canada and the U.S. on Thursday in a move by the cannabis company to strengthen its financial position, MarketWatch has learned.
Canopy Growth Corp. (WEED.T) has ceased funding BioSteel, which rang up about C$32.5 million ($24 million) in sales in the company's fiscal first quarter.
Canopy Growth's stock was up 17% on Thursday, on the heels of losses in recent sessions. The stock is up about 239% in the past month after the U.S. Department of Health and Human Services to move cannabis to a Schedule III classification from Schedule I.
The BioSteel filing "immediately eliminates significant cash burn for Canopy Growth and provides for an orderly realization...through a sales process," the company said.
As BioSteel's senior secured lender, Canopy said it plans to recover proceeds from a bankruptcy sale.
BioSteel has begun proceedings under the Companies' Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice and will also seek protection from creditors under Chapter 15 of the U.S. Bankruptcy Code for parties of interest involving more than one country.
In a statement, Canopy Growth Chief Executive David Klein said the BioSteel bankruptcy marks a "major milestone" in the company's plan to generate adjusted earnings before interest, taxes, depreciation and amortization by the end of fiscal 2024.
With year-over-year revenue growth for BioSteel, "we believe the brand remains an attractive asset, [but] it does not align with Canopy Growth's cannabis-focused asset-light strategy," Klein said.
Canopy Growth's auditor in June disclosed that it has "substantial doubt about its ability to continue as a going concern" after a series of money-losing quarters. It also launched a strategic review of BioSteel at that time.
Canopy Growth cut 1,200 jobs in 2022 and 2023 as it shifted to an asset-light business model.
Also read:Canopy Growth faces SEC investigation after BioSteel sales misstatements
BioSteel "is a great brand," but that type of consumer-packaged goods requires "a lot of investment to grow" and it's not the best fit for a cannabis company, Canopy Growth CEO David Klein told MarketWatch over the summer.
Canopy Growth in June said it was being investigated by the Securities and Exchange Commission for material sales misstatements of BioSteel, which has partnerships with star athletes such as NFL quarterback Patrick Mahomes and the NBA's Luka Doncic.
The correction to the figures led to a decrease of roughly C$10 million in net sales for the year ended March 31, 2022, or roughly 2% of total sales.
Canopy is now working to keep its Canadian operations alive while it pursues its strategy to enter the U.S. market.
In July, Canopy Growth said it has reached agreements with its lenders to de-lever its balance sheet by C$437 million ($333.04 million) over the next six months and reduce annual interest costs by C$20 million to C$30 million.
Also read: Once-mighty Canopy Growth loses billions as dream of pot riches runs into reality of oversupply and overspending
-Steve Gelsi
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September 14, 2023 10:58 ET (14:58 GMT)
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