The biggest cannabis producer in the world in terms of market capitalization is shrinking in size by shutting down 3 million square feet of greenhouse facilities in British Columbia.
The cannabis company announced that the closures have resulted in the termination of around 500 employees. It also disclosed it is no longer planning to unveil the production of the third plant in Ontario, Canada. The New York-traded stocks of the company dropped over 1.5 percent in after-hours trading, Wednesday.
Almost 17 months following the establishment of a legal adult-use market, the Canadian recreational cannabis sector has grown slower than expected, creating working capital and sales issues across the market, Canopy said. Moreover, government policies allowing outdoor cultivation were introduced after Canopy made significant investments in cannabis production.
In a statement, Canopy Growth chief executive officer David Klein said that a study by the board found that the greenhouses in British Columbia is no longer "essential to the company's cultivation footprint."
Canopy said that it projects to generate a pre-tax penalty of C$700 million to C$800 million in conjunction with Wednesday's disclosure and more revisions to the organization. The British Columbia facilities started operations in February 2018.
North America's biggest cannabis producers have struggled as their business growth far surpassed the actual development of the cannabis market. Companies such as Canopy have since undertaken drastic measures to realign to ensure near- and long-term sales stability.
Steve McLean, who has worked for Canopy since September 2019, divulged that workers were informed Tuesday of an important meeting set the next day. During the meeting, staff were told that "everyone has been terminated," McLean emphasized.
Stock of Canopy Growth settled up 2.5 percent to $17.75, as the S&P 500 index climbed 4.1 percent. The Cannabis exchange-traded fund THCX rallied 4.8 percent in the after-hours session on Wednesday.
Andrew Carter, an analyst at Stifel Group who covers stocks of Canopy said he wasn't surprised by the cannabis maker's announcement.
"We believe the company has carefully thought about its cultivation footprint for current and future needs," he said in a note to shareholders.
Cannabis market analyst Jay Rosenthal said Canopy's job cuts come as the cannabis sector tries to "right-size" itself. Last month, Aurora Cannabis made public plans to lay off 500 workers. In October of 2019, Hexo Corp. announced it was letting go of 200 personnel.
Last year, global alcohol manufacturer Constellation Brands disclosed an agreement in August 2019 to invest $5 billion in Canopy Growth to seal a 38 percent stake in the company.
