Canopy Growth faces gross margin pressures, will limit spending: CFO

SMITHS FALLS, Ont. — Canopy Growth Corp. is expecting to face pressure on its gross margins in the coming quarters as it grapples with the COVID-19 pandemic.

The Smiths Falls, Ont.-based cannabis company’s chief financial officer Mike Lee says the company is anticipating gross margins to be drop below 30% during the pandemic, down from Canopy’s 40% target.

He says Canopy’s gross margins are particularly challenged because 50% of its production costs are fixed and the pandemic is causing the company to lose some economies of scale.

Lee is slowly seeing the industry rebound from the pandemic and says Canopy’s performance in Canada’s recreational market has improved modestly in recent weeks as brick-and-mortar stores reopened.

Despite signs of a rebound, Lee says Canopy is taking measures to limit spending and is deferring or cancelling any non-binding commitments it can.

Lee’s remarks came on an investor call Canopy held to discuss the company’s outlook and the future of the global and legal cannabis market, which chief executive David Klein says could grow to be worth $70 billion by 2023.