Canopy Growth Corp., the largest cannabis company in the world by market cap, has had a few disappointing quarters recently, losing over $1 billion in the past 6 months. As a result, Canopy Growth is trading down 32% year-to-date.
On Friday MKM analyst Bill Kirk said that he believes Canopy Growth will not be profitable anytime soon. He said, “Unlike market expectations, we do not expect Canopy to become a profitable organization by FY2022.”
Kirk anticipates increased spending from the company. He also expects pressure on Canopy’s business in Canada as additional supply reaches the market. He said, “Current spending is the beginning of what is needed to capture future profitable opportunities. Existing cultivation businesses will continue to be under pressure as more supply comes online.”
Kirk recommended that analysts ask these 10 questions when attending Canopy Growth’s investor meeting today (12/3/19):
- How does the FDA’s updated stance on CBD impact your plans for CBD beverages in the U. S.?
- How much more labor do the 2.0 products require compared to the current portfolio?
- Is employee morale impacted by the plans to cut executive compensation?
- Why have your peers struggled to have a THC Beverage ready for 2.0?
- Has any industry opened 40 stores during a month in a single province?
- Compared to six months ago, have your plans for vape changed (marketing, resources, etc.)?
- With such low levels of oil inventory, do you have enough to meet 2.0 launch demands?
- What is most important for getting share from illicit (pricing, 2.0, enforcement, or quality)?
- What facilities are best for you to service Europe?
- Does STZ’s (Buy, $184.06, $256 PT) comment about no more cash contribution (aside from warrants) surprise you?
Personally, I’d like answers to all 10 questions but I am very focused on 3 particular topics.
- For the short term, we need clarification and confidence that we will actually see the expedited rollout of retail shops across Canada. If they can not deliver a stronger retail network for 2020 then we need realistic expectations for revenue and guidance.
- Examining how the the black market is affecting their business. It will contribute to profitability as black market consumers are converted to legal market consumers but Canopy Growth Corporation needs a real strategy in order to make this a reality.
- Canopy Growth Corporation needs to focus its efforts on international revenues as opposed to international research and development. They need to provide clarity as to how they will be a globally profitable cannabis company.
We know that Canopy Growth is a leader in the cannabis industry and we know it has a safety net that most of its peers don’t: its partnership with Constellation Brands (NYSE:STZ). But, as investors, what we need to see from today’s meeting is Canopy Growth’s path to profitability. Hopefully, we will get some clarity.
CGC shares were trading at $18.40 per share on Tuesday afternoon, up $0.26 (+1.43%). Year-to-date, CGC has declined -31.52%, versus a 25.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
