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Canada cannabis giant quits sports drink sector

Canada’s Canopy Growth, North America’s largest cannabis enterprise, is quitting the sports drink sector.

It is putting its BioSteel Sports Nutrition arm into bankruptcy protection from its creditors in its latest attempt to cut costs and stem losses.

The company said it will no longer fund BioSteel and that it has fired or given working notice to the sports-drink company’s 181 employees.

Canopy said that putting BioSteel into bankruptcy protection would potentially help it find a buyer for the sports drinks arm.

The BioSteel offshoot accounted for 60% of the group’s first quarter losses this year and the company said the move should lower its debt by CN$95 million (£57m) over the next two quarters.

The debt reduction programme will be welcome to Canopy’s biggest shareholder, America’s Constellation Brands, especially as the shares rose on the news that the cannabis company was shedding its biggest liability.

In addition, Canopy is raising up to US$50m through private share placements with unnamed investors at CN$1.09, a 30% discount to the current price.

The first half of the issue has been completed. The investors have the option to take up the other 50% at the same price before 2 November.

The debt reduction programme will be welcome to Canopy’s biggest shareholder, America’s Constellation Brands.

Since 2017 Constellation has invested more than US$4 billion in a 37% stake in Canopy and has already written off more than US$1bn of that investment.

Canopy has been grappling with liquidity issues for several years and has taken numerous steps to move towards profit. They include including quitting some international markets and selling off its retail outlets across Canada.

Canopy took a 72% stake in BioSteel in 2019 for CN$50m (£30m) to develop a CBD-infused sports drink range. Subsequently it increased that stake to 90%.

Since the initial purchase, Canopy has invested CN$366m in the sports drink company through a secured loan and credit facility.

Earlier this year, Canopy sold its head office in Ontario and laid off 800 workers as part of its plan to reach profitability. The company’s shares on the Toronto Stock Exchange have fallen by 40% this year.

Canopy first flagged up questions about its ability to keep BioSteel as going concern in June and repeated the warnings last month.

Last autumn Canopy announced plans to wrap its various U.S. cannabis assets into a single holding company called Canopy USA but that ran into initial problems as the planned nationwide listing on the NASDAQ stock exchange stalled.

As cannabis remains illegal in many US states, NASDAQ could have been open to potential prosecution there for allowing residents to buy shares in the producer of an illegal substance.

Meanwhile, Constellation, which has said it is keeping faith in Canopy’s long-term prospects, is partially distancing itself from the Canadian company by switching its common shares into new exchangeable shares.

The switch means Constellation no longer has a right to nominate representatives to Canopy’s board or to approve certain transactions.

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