Canadian Cannabis powerhouse Canopy Growth is in many investor’s eyes the epicenter of the legal cannabis sector. Although we have seen a steady decline in the company’s share price since the legalization of recreational cannabis in Canada in October last year, the company is still the only ‘large cap’ cannabis company in the industry, as well as the market leader in terms of annual sales. In addition Canopy Growth also boasts the largest partnership with a non-cannabis company through Constellation Brands investment of $5 billion CAD into the company.
Even with all the positives that this company is offering the sector, Canopy has been experiencing a rough patch of late. This based on mounting quarterly losses, and lower than expected recreational and medical cannabis sales figures, and a large number of costly expenses which ultimately caused the departure of long standing CEO Bruce Linton last week. Although Linton had initially claimed that his departure was a mutual decision, it recently came to light that he was forced out of his position, due to ‘lack of leadership’. While Linton is no longer part of the company, Canopy are currently searching for a new CEO, and co CEO Mark Zekulin has also said that he has plans to step aside once a replacement has been found.
As canopy begins its management shakeup, and restructure it’s the perfect time to consider if we think that the cannabis Giant is worth investing into. Now that Canopy are a large cap company, we believe that the restructure is going to mature the company to take hold of the potential they have, by improving their bottom line in a big way. In the company’s most recent financial report the cannabis company posted a shocking net loss of 174 million CAD, which was almost double what analysts had predicted. What we can expect for the next step is the company to make changes to their expenses and rein in on the spending, which should be able to clear way on the path to profit.
Canopy Growth as an investment, has not been prefect by any means over the last eight months, but this is set to rapidly turn around, with the lull in share price being a temporary bump in the road. Constellation brands being a large investor in the company will be the most beneficial thing to the company, as the management at Constellation Brands know how to create shareholder value. This can be seen by the fact that Constellation Brands own share price has seen a monumental price increase of 1,450% over the last ten years over 100 percent a year. With Constellations taking a very proactive interest in the re-structuring and internal financial procedures could be a prelude to a buyout by the alcohol giant. With the potential buyout on the cards, this could be the catalyst that sends Canopy growth’s share price into a huge upward momentum for the years to come which would make the next coming weeks and months a great time to buy shares.
David Hawkins – IEC International
