Canadian cannabis company Canopy Growth Corp. said Friday it has reached agreements with its lenders that will delever its balance sheet by C$437 million ($333.04 million) over the next six months.
The agreements will also help it reduce annual interest costs by C$20 million to C$30 million.
The once-high-flying company, with a $4 billion investment from Corona beer brewer Constellation Brands Inc.
STZ,
back in 2018, has fallen on hard times and issued a “going concern” warning last month. Its market cap has fallen to about $380 million, according to FactSet data.
The stock slid 16% premarket as the new failed to inspire investors.
The Smith Falls, Ontario-based company
CGC,
WEED,
has struggled to find a pathway to profitability in the Canadian market, which has been hampered by oversupply and a thriving black market, ever since Canada became the first G-7 country to fully legalize cannabis for recreational use in 2018.
Canopy is now working hard to keep its Canadian operations solvent while it pursues its strategy to enter the U.S. market, which is expected to be a more than $50 billion market by 2026. The company is planning to house the companies in which is has options including Acreage cannabis, Wana Brands edibles and Jetty Extracts into a U.S.-domiciled company called Canopy USA LLC.
See now: Canopy Growth’s stock pops after it reveals latest plan to enter U.S. cannabis market
The company has cut 1,200 jobs in the past year, reducing its headcount to 1,621 total employees including 1,185 full-time workers in Canada.
For more, see: Canopy Growth cuts 1,200 jobs in past year and issues ‘going concern’ warning as analyst eyes solvency of cannabis company
To illustrate just how grim things are, Eight Capital analyst Ty Collin cut his price target for Canopy to zero last week from C$1.75 previously and said it’s no longer appropriate to view the company as a going concern.
The company may have less than 12 months of cash runway while facing a lack of financing alternatives, and sustaining large ongoing losses, he said.
Also Read: Canopy Growth faces SEC investigation after BioSteel sales misstatements
Among the agreements announced Friday, Canopy said it would preserve about C$92 million in cash by settling C$193 million aggregate principal of unsecured senior notes that mature on July 15 with a mix of shares and noninterest-bearing convertible bonds.
The company will reduce C$100 million of principal indebtedness under its credit facility for a cash payment of C$93 million and expects further principal reductions at 95 cents on the dollar upon completion of certain asset sales.
“We are pleased to have worked constructively with our lenders to reach these agreements which enable Canopy Growth to preserve cash, and further improve its balance sheet through accretive and meaningful reductions in its overall debt,” Chief Financial Officer Judy Hong said in a statement.
The company will file its preliminary proxy statement later Friday for its 2023 annual shareholder meeting, which is scheduled for Sept. 25.
The U.S.-listed shares are down 71% in the year to date, while the AXS Cannabis ETF
THCX,
has fallen 30% and the S&P 500
SPX,
has gained 17%.
Also Read: As Tilray buys Hexo, former exec sees more consolidation ahead in Canadian cannabis
