Canopy Growth: Cracking The Piggy Bank Again

 

• Canopy Growth makes another investment to enter the U.S. THC market when federally permissible.
• Wana Brands doesn't have a dominant market position in edibles to justify an aggressive move.
• The Canadian cannabis company will no longer have a net cash position following this deal and another quarter of operating losses.
• Even down at the lows, the stock still trades at a very expensive P/S multiple of 10x FY22 sales targets.
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The Canadian cannabis LPs have consistently overspent on acquisitions and facilities to build empires. The latest deal by Canopy Growth (CGC) repeats on this history of aggressively attempting to buy growth when patience is needed. My investment thesis remains Bearish on the stock as the company makes another upfront payment to enter the U.S. market.

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Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Update - Dec. 22, 2021

Analysts finally get real about the logical valuation of Canopy Growth. The stock was already trading at the lows and a couple of analysts slashed targets to the $7 range. 

• Piper Sandler is has downgraded shares of Canopy Growth Corp. (CGC -9.0%) to underweight from neutral as it sees continued sales trend pressure.
• The firm has lowered its price target to $7 from $11 (~27% downside).
• Analyst Michael Lavery says that a sum of the parts analysis finds a potential valuation even lower, of $5-$6 per share.
• Bank of America analysts Lisa K. Lewandowski and Bryan D. Spillane have lowered their recommendation on the Canadian marijuana player to Underperform from Neutral, citing challenges in its home market.
• The price target cut to C$10 from C$19 per share implies a downside of ~19.9% to the last close in Toronto Stock Exchange.

Update - Nov. 19, 2021

Rather bad signal to see the CFO and President to just leave immediately. Canopy Growth should hit new lows here. 

-Canopy Growth (NASDAQ:CGC) announces strategic changes to its Executive Management Committee.
-Effective immediately, Mike Lee, Executive Vice President and Chief Financial Officer (CFO), and Rade Kovacevic, President and Chief Product Officer will be stepping down from their respective roles and will depart from the company on December 31, 2021.

Update - Nov. 5, 2021

Another ugly, ugly quarter with EBITDA positive targets pushed out from updated targets of March. The stock is only going to head lower as acquisition after acquisition fails to drive growth and the company continues to produce massive EBITDA losses topping C$70 million in the last quarter. 

-Canopy Growth (NASDAQ:CGC) shares are trading ~3.2% lower in the pre-market after the company reported its first-ever quarterly revenue decline with its Q2 financials for fiscal 2022.
-Net revenue dropped by ~2% YoY to C$131.4M as the growth of global net cannabis revenue slowed to ~1% YoY from ~17% YoY in Q1 FY22, bringing C$95M in sales. 

-Canadian recreational cannabis sales contracted ~4% YoY to C$59M.
-Meanwhile, the Canadian company reported C$71M of gross loss compared to C$27M gross profit in the preceding quarter.