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Canopy execs bet on diversification following $657 million loss

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Just days after Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC) reported a $657 million net loss for its most recent fiscal year, which concluded at the end of March, company leadership insisted during the business’s regular earnings call that it is moving in the right direction by with a broadening international portfolio that relies on further cannabis reforms in the U.S. and Europe.

CEO David Klein and CFO Judy Hong both delivered the same bottom line to stakeholders during the call: The future will bring profitability through diversification. Klein boldly predicted that the coming 12 months “will be a banner year for Canopy,” in part because of the expected federal rescheduling of marijuana, which would bring immense tax savings to the cannabis trade.

A good-sized part of the company’s portfolio growth could come through Canopy’s new U.S. division, Canopy Growth USA, which owns multistate operator Acreage Holdings as well as the popular product makers Wana Brands and Jetty. All of those are busy expanding across key U.S. state marijuana markets, Klein said.

“We believe that with this setup and its entry into the Canopy USA ecosystem, Acreage is well positioned to realize significant and profitable growth ahead,” Klein said, despite Acreage’s $69 million net loss last year.

“The timing for the advancement of our U.S. strategy is also aligning nicely with major strides on the regulatory front, including rescheduling,” Klein noted. “We’ve been unequivocal in our support for rescheduling and believe that this change represents a leap forward for the industry.

“And from a financial perspective, I’d like to emphasize that rescheduling is especially significant as it will provide an immediate and meaningful improvement to the cash flow of all state legal cannabis businesses, including those within Canopy USA,” he added.

Klein said that the full acquisitions of all three U.S. companies are still in the works, but they are all expected to close soon. “We don’t see any major regulatory hurdles” with the purchases, he said. The combination of all three will be a powerful force in the supply chain, which Klein suggested will eliminate Acreage’s financial woes.

“We expect actually that Acreage’s challenges … (will) be resolved through a kind of amalgamation with CUSA,” Klein said. “When we put those businesses together, there will be … significant bottom line synergies available as well when you eliminate the public company costs that are currently associated with Acreage.”

Hong added that Canopy also expects significant growth and returns from its cannabis footprint in Germany, Poland, the Czech Republic, and Australia, as well as from its vaporizer company, Storz & Bickel.

All of that put together, Hong said, will allow Canopy to “achieve healthy profit margins and enhance shareholder value over time.”

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