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Canopy maps out turnaround built on layoffs, drinks, U.S. CBD

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Canopy Growth Corp. is doubling down on its cannabis-infused vapes and drinks, as well as upcoming U.S. CBD products, while continuing to cut costs as it looks to rebuild investors’ trust.

The world’s biggest pot company discussed plans to address its sagging market share in the Canadian recreational market as well as its strategy for the U.S. cannabis market in a presentation to investors Monday.

Canopy executives, including Chief Executive Officer David Klein, walked through the company’s efforts to bounce back following several disappointing quarters, including last month when it reported a net loss of $1.3 billion for its fiscal fourth quarter. Canopy has about 15 per cent of the Canadian recreational pot market, down from about 20 per cent from the beginning of the year, analysts estimate.

“While we have seen softening of market share performance in recent months, notably in Ontario and Alberta, we’re taking positive active steps to address those challenges,” said Rade Kovacevic, chief product officer at Canopy, during the presentation.

Canopy signalled that it’s planning additional layoffs on top of the 800-odd workforce reductions it announced since January to help cut its general and administrative costs and reach a gross margin target of 40 per cent. It also plans to roll out cheaper dried flower products to win back market share, while reducing the total number of items it sells to help avoid consumer confusion, Kovacevic said.

Canopy said it sees its cannabis-infused beverages as a key offering to help win over more of the Canadian market, notably consumers who have no interest in smoking pot. The company has shipped 530,000 drinks so far and its so-called “Cannabis 2.0” products now account for 12 per cent of its total sales. Klein noted that cannabis-infused beverages could soon account for five per cent, or about $1.3 billion, of the Canadian beverage market.

“With beverages, the idea is that they’re substitutable [for alcohol],” said Kovacevic, adding that the company initially expects curious consumers to try the infused drinks, and then rely on word-of-mouth to get awareness out.

The U.S. CBD market is shaping up to be an area of significant interest for Canopy, where the company plans to leverage several of its brands including its BioSteel sports drink to cut through what was described as a “massively-fragmented market.”  Canopy plans to launch its Martha Stewart-led CBD brand in the U.S. this fall, with human-consumed products rolled out first and pet-focused items afterward, Klein said.

“We intend to make a lot of noise in the U.S.,” Klein said. “We’re doing a lot of work to get that wiring right so we can address that market.”

In addition, Canopy executives identified dried flower quality as an area of improvement. The company plans to tweak various moisture levels and restructure its supply chain over the next several years to bring its products to market more quickly.

Overall, Canopy sees the total addressable market for legal cannabis reaching $70 billion by 2023, with an assumption that the U.S. federally legalizes recreational pot by then, according to Klein.

Markets in U.S., Canada and Germany are expected to account for 90 per cent of that total market, Klein said. ​

Original Article: https://www.bnnbloomberg.ca/canopy-maps-out-turnaround-built-on-layoffs-drinks-u-s-cbd-1.1454410

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