Pci Tech

Fitch Ratings on Canopy Growth

When it comes to managing a business, you need a lot more than a calculator, a rolodex and a good old-fashioned work ethic. You need tools for client management, project planning, document management, payments and time & billing, all integrated on one platform. That’s where Canopy comes in.

The company cultivates and sells medicinal and recreational cannabis, and hemp-based products. Its branded portfolio of cannabis products includes Tweed, Doja, 7ACRES, Deep Space and Martha Stewart CBD brands, along with a wide range of non-THC consumer packaged goods (CPG) offerings like sports drink BioSteel, skincare products under the This Works brand and Storz & Bickel vaporizers. Its CPG products generate nearly half of total revenues. Canopy Growth operates its global businesses through subsidiaries in Canada, Australia, Germany, the United Kingdom and New Zealand, and is headquartered in Smiths Falls, Ontario, Canada.

Fitch’s ratings on Canopy Growth reflect the company’s canopy company dominant position in the Canadian marijuana market, a highly-competitive global CPG and cannabis industry with the potential to reach USD5 billion in 2025, and its strategic investments to support this growth. The ratings also factor in the company’s diversified revenue streams with significant contributions from its U.S. business, which are expected to grow rapidly in the years ahead and be supported by a mature regulatory environment for THC-based products.

In addition, Fitch notes the company’s strong cash flow generation and its focus on profitability improvement, which has resulted in significantly reduced selling, general and administrative expenses and cost of goods sold through a combination of operational efficiencies and pricing strategies. The Company is also well-positioned to benefit from the impending easing of restrictions on cannabis exports from Canada to the United States.

As part of its plan to deleverage its balance sheet, the Company has entered into a series of agreements with existing noteholders and lenders under its term loan credit agreement. The Company has agreed to redeem for cancellation CAD337 million in principal of its unsecured senior notes due July 15, 2023 (“Existing Notes”), and has amended its credit agreement to eliminate the USD500 million accordion feature and add a new CAD100 million delayed draw term loan facility.

Additionally, the Company is pursuing an alternative financing structure by separating its U.S. assets into a separately operated holding company, Canopy USA LLC (“CUSA”), which will not be consolidated into the Canadian company’s financial statements under U.S. GAAP accounting. Constellation Brands, which owns a significant equity stake in the Company, has agreed to exchange its existing common shares for non-voting and non-participating CUSA common shares. The Company expects to complete the transaction in the second half of fiscal 2024. The Company intends to file a definitive proxy statement for shareholders to approve the share swap. The transaction is subject to the Company’s final review and approval by its board of directors and the approval of a majority of its shareholders. The Company will provide more detailed information on the transaction in a future press release.