In a development that should raise alarms in the cannabis industry, Canadian cannabis giant Canopy Growth (TSX:WEED) (NYSE:CGC) announced late on Wednesday that it is going to shut 3 million square feet of its greenhouses and CGC stock tanked at the opening bell. Canopy is the biggest cannabis company in the world, but it is now shrinking.
Eliminates 500 Jobs
The company announced that it is going to close down two of its cultivation facilities and, as a result, would need to lay off as many as 500 employees as well. In addition to that, Canopy announced that it has shelved its plans to establish a new greenhouse facility in Ontario.
In its statement, Canopy Growth revealed that even though 17 months have elapsed since the legalization of adult-use recreational marijuana in Canada, the market has not developed at the desired pace.
The statement went on to speak about the troubles in the cannabis industry over the past year or so and how most companies have struggled for profits as well as for working capital.
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CGC stock fell about 5% to $17.01.
However, the decision to close down the greenhouse facilities is due to the government’s decision to allow outdoor cultivation, after Canopy had already invested heavily in greenhouse production.
That being said, the company did point out that its outdoor cultivation facility is actually its most cost-effective. Many of the companies in the cannabis industry have struggled because they grew their operations far quicker than the growth of the actual industry. This is why drastic actions are now being taken by companies so that they can be profitable in the long-term. The sites that are going to be closed are located in Delta and Aldergrove in British Columbia.
The closures are expected to result in a pre-tax charge of C$700 million to C$800 million on the company’s earnings. More importantly, such drastic measures can often lead to unpredictable swings in the stock price, so investors should keep an eye on CGC stock this month.
Featured image: Canva
