Canadian sports drink brand BioSteel is heading for a court-supervised sale after parent company Canopy Growth’s decision to cut ties amidst painful cash burn and growing losses.
- BioSteel’s sagging performance has hurt the parent company’s profitability and cash flow, representing approximately 60% of the Company’s Q1 FY2024 Adjusted EBITDA loss.
- “We believe the brand remains an attractive asset, it does not align with Canopy Growth’s cannabis focused asset-light strategy,” said David Klein, Chief Executive Officer at Canopy.
- BioSteel has requested and received a stay of proceedings from the Ontario Superior Court of Justice that also covers its two U.S. LLCs, BioSteel Sports Nutrition USA and BioSteel Manufacturing. KSV Restructuring Inc. has been appointed as BioSteel’s monitor for the sales process.
- Removing the operating loss and cash burn from BioSteel’s business, Canopy is projecting positive Adjusted EBITDA across its other divisions “exiting FY2024.”
Analysis
After an impressive few years that drew some comparisons to the early rise of BodyArmor, BioSteel’s momentum was derailed this year by a combination of overstating sales (cue SEC investigation) and an internal review which sparked a leadership turnover and terse talk of “legal remedies” to recover damages.
But today’s decision marks a sharp turn, at least in public rhetoric, from Canopy, which just a few months ago was touting gross margin improvements, promotion cuts, new supplier contracts and a warehouse model that could eliminate large fixed cost-obligations and trim shipping spend.
So what changed? For a company under pressure to deliver some good news for shareholders — Canopy’s net loss was $648 million in FYQ4, a $59 million increase from the same period last year — cutting a struggling, cash-bleeding brand from its portfolio will likely be seen as a win. The cannabis company remains BioSteel’s largest shareholder and creditor, so there will be more money on the way following its eventual sale. The aforementioned desire to go asset-light and focus on cannabis could also inspire Canopy to think about selling the Virginia production facility it purchased from Flow Beverage Corp. in a $19.5 million deal last year. The company still markets a range of THC-infused drinks in Canada, but dropping BioSteel effectively ends its U.S. beverage presence for the time being.
Now available as a free agent, BioSteel could represent an attractive option for investors looking to enter sports/hydration drinks (and mixes) with a product that retains decent awareness via official partnerships with NFL MVP Patrick Mahomes and the Los Angeles Lakers, among others. Per Circana sales data through July 21, BioSteel generated over $11.7 million year-over-year in MULO plus-convenience dollar sales. In the meantime, brands like PRIME and Electrolit have outpaced its growth.
Either way, potential buyers should be prepared to start from scratch; as the news broke earlier this morning, now-former BioSteel employees began posting about layoffs on LinkedIn.