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Canadian pot producer Canopy Growth Corp. on Thursday said that it was being investigated by the Securities and Exchange Commission, after the company uncovered “misstatements” related to sales in its BioSteel sports-drink segment.
The disclosure came after Canopy Growth
CGC,
+0.27%
reported another quarter of deeper-than-expected losses and weaker sales, even as it scales back in an effort to find a way toward profitability. Shares fell 3.6% after hours on Thursday.
Canopy said that after conducting a review, it found “material misstatements” related to some sales in BioSteel, which has partnerships with star athletes like the NFL’s Patrick Mahomes and the NBA’s Luka Doncic. The company also said it found “material weaknesses” in its financial reporting protocols.
The correction to the figures led to a decrease of roughly C$10 million in net sales for the year ended March 31, 2022, or roughly 2% of total sales. For the nine months ending Dec. 31, the correction cost the company C$14 million in sales, or roughly 4% of total company sales.
“As a result of self-reporting the BioSteel Review, the company is the subject of an investigation by the SEC and an ongoing informal inquiry by regulatory authorities in Canada, and it cannot predict the timing of developments, and any adverse outcome of these continuing matters could have a material adverse effect on the company,” Canopy Growth said in a filing.
Canopy said it was cooperating with the regulators. It disclosed the review and the initial identification of the misstatements last month.
Canopy said it was making management changes and “appropriate personnel actions” as a result. During the company’s earnings call, Chief Executive David Klein said Canopy had “exited several members of the BioSteel leadership team.”
In Canopy’s earnings release, it also said it was “considering all legal options that may be available in connection with the associated overpayment made in FY2023 to the minority shareholders of BioSteel as a result of the overstatement of revenues.”
Canopy also said it had taken other steps to boost the bottom line at BioSteel, including exiting its international business, cutting costs and redirecting resources toward Canada and the U.S.
The cannabis producer on Thursday also reported a fiscal fourth-quarter net loss of C$648 million, or C$1.28 a share, compared with C$582.5 million, or C$1.48 a share, in the same quarter last year.
Net sales fell to C$87.5 million, compared with C$101.8 million in the prior-year quarter. The decision to offload a cannabis-compound company helped drag sales lower. However, the company said that the cannabis business in Canada had “stabilized” exiting the fiscal year.
Analysts polled by FactSet expected a 20-cent per-share loss, on revenue of C$95.1 million.
The results marked yet another difficult round of results for Canopy, which like other Canadian producers has tried to retrench after it grew far more weed than people wanted, ran up against too much competition and found itself without a steady avenue for growth as federal cannabis reform stalled in the U.S. Canopy Growth
CGC,
+0.27%
in recent months has rid itself of its fleet of pot shops, tried to shrink its debt and is on track to close nearly a dozen production sites over the past three years in an effort to reach profitability.
Shares of Canopy Growth are down 82% over the past 12 months.
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