Canopy Growth's Going-Concern Risk: Is the Company in Danger of Going Out of Business?
Canopy Growth (NASDAQ: CGC) has continually been burning through cash and incurring losses over several years. Although it has been slashing costs, it still has a long way to go to break even, assuming it can ever get to that point. And in the company's most recent earnings report (for the period ended March 31), it made a startling admission: It might struggle to pay its debts.
On Canopy Growth's most recent earnings report, which it released on June 22, the company reported that its cash and short-term investments totaled roughly 783 million Canadian dollars ($589 million). And with negative operating cash flow and the need to make CA$468 million in principal debt repayments over the next 12 months, the company stated that there is "substantial doubt about our ability to continue as a going concern for at least twelve months from the issuance of the financial statements."
"Going concern" refers to the company's ability to survive and pay its obligations and debts as they become due. While the company does appear to have ample cash on its books right now, the problem is that it has continually burned through cash. For the year ended March 31, Canopy's operating cash burn totaled CA$557.5 million, comparable to the CA$545.8 million it used up in the previous fiscal year.
Source Fool.com
