Neptune Wellness Solutions (NEPT.T) announced that they’re launching a new strategic plan involving cannabis divestiture and a pivot towards consumer packaged goods (CPG) to reduce costs, and improve the company’s path to profitability.
The initial strategic review took place in the fall of 2021 and focused on two points: increasing their systematic divestiture from the Canadian cannabis business, and a pivot towards bolstering and supporting Neptune’s consumer products business, which they feel has a better chance of pushing them towards profitability.
“This is the final stage of our transition to a pure play, purpose driven consumer packaged goods Company. This strategic divestiture greatly simplifies our overall structure, enabling us to hyper-focus on those areas of the business we believe are best positioned for profitability and growth. Of course, the most difficult part of the Company and Board making this decision is the impact on our workforce. We are committed to working with those employees to ensure they are supported throughout this transition. I extend my deepest gratitude to each and every person impacted by this decision and thank them for their hard work and dedication to Neptune throughout their tenure,” said Michael Cammarata, president and CEO of Neptune.
Neptune is a diversified health and wellness company focused on developing a portfolio of quality and affordable products for sustainable and purpose-driven lifestyle brands. Regardless, change is always painful and this change is going to require some sacrifices. The divestiture from the cannabis business involves selling their Mood Ring and PanHash brands as well as their facility in Sherbrooke, Quebec. It was appraised at CAD$21 million by a third party appraiser. Neptune kept Stifel GMP to support their divestiture.
What this means is that the company is going to have to reduce their workforce by half, with over 30% of total payroll costs and an estimated annual savings of $5.8 million. They anticipate seeing more savings as their overhead tumbles.
It also means that leaving the cannabis industry could ultimately spell some changes in the type, amount and structure of financing the company can access. The amount of financing, given a low expense structure, along with cash inflows from the divestiture, should reduce. It’s probable that the company will be able to work with a wider set of financing sources, which now includes traditional banks which had been previously barred (at least in the United States) from dealing with cannabis companies due to Federal regulations.
The company’s pivot will mean greater focus on its core brands—Sprout Organics and Biodroga Solutions—which the company believes align with future consumer trends and show a better rout to growth and profitability.
Sprout is an organic baby and toddler food brand that’s shown some distribution gains over the past year, having gotten onto shelves in Walmart and Target.
Biodroga Solutions is Neptune’s B2B nutraceuticals business.
—Joseph Morton