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Canopy Growth's Big Brand Development Strategy


  • The management team at Canopy Growth announced a major strategic move that allows the firm to partner up with Martha Stewart.
  • This move is logical for Canopy as it should be moving toward becoming a lifestyle brand, and it has little to lose from this.
  • It also fits well with the firm's move into industrial hemp in New York and its commitment to developing more in the US.
  • For Sequential, the parent of Martha Stewart's brand, this could be a boon for business at a time when the firm's prospects look mediocre at best.
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Though the recreational cannabis industry may be viewed by different people from different perspectives, my view is that tomorrow’s industry leaders will be looked back on and have one thing in common: an emphasis on establishing and growing lifestyle brands. The premium that comes with robust name recognition, along with the growth prospects of experimenting in different verticals, makes the lifestyle focus logical. Time and again, one of the companies that most exemplifies this approach is Canopy Growth Corp. (NASDAQ:CGC). The latest such example of this can be seen by looking at the firm’s just-announced partnership with Sequential Brands Group (SQBG) and, more specifically, Martha Stewart. Using these iconic brands, Canopy will utilize the practical applications of hemp and other cannabis-related products to help to build up its own business, while Sequential may benefit in its own way.

A look at the deal

Specific terms of the arrangement between Canopy and Sequential have not been announced, but in its press release talking about the move, Canopy announced that they will collaborate with Sequential and Martha Stewart in an effort to create hemp-derived CBD products aimed at improving the lives of humans and animals alike. Leveraging the Martha Stewart brand name, which reaches 100 million consumers across all media and merchandizing platforms each month and whose products are in at least 70 million households, Canopy will aim to target a wide consumer base in order to grow sales faster than if the firm had to start everything from scratch.

While we don’t know which products will be among the first to come from this partnership, we do know that whatever is chosen will fit under the pets category. Even though this may seem odd given the nature of cannabis, cannabis-related products include, but are not limited to, pet food, pet clothing, and bedding. Outside of the pet-specific options I

This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (78)

PT Larry profile picture
This is the latest attempt to offer a bill to legalize marijuana. Dated March 7, 2019.
cmespeed66 profile picture
What's the real target price for CGC?
PT Larry profile picture
@cmespeed66 Latest price target for CGC by Jefferies is C$60 or $49 US.
Reaction will be interesting. Q4 wasn't great, but guided to small amount of revenue and EBITDA growth in 2019. Adjusted FCF of $33 million on $64 million shares or 50 cents a share on a $1.60 stock. Hoping they can get it closer to $40 million and start to make a real dent in the debt level.
Timothy Stabosz profile picture
I did sell 1/3 of my position on the run up....but have been buying some of those shares back on the pullback here.
Cannabis for pets. I sold all mine out on the amazing runnup(s). I've decided to wait for earnings before thinking bout re-entering, unless of course some huge selloff hits. Best o Luck Tim.
Timothy Stabosz profile picture
Wondering if the pending SQBG earnings release provides a basis for a “second run” in the stock. Really, this stock is still way too cheap on a sum of the parts basis. It’s crazy that even with the hoopla of cannabis, it is trading for such a discount to break up value.
Opportunistic Fox profile picture
Can you elucidate your sum of the parts math? Given that SQBG equity is only ~10% of the overall EV, a 50% EV premium would make the equity a nearly 10 bagger.
From Daniels article:
"Even though this may seem odd given the nature of cannabis, cannabis-related products include, but are not limited to, pet food, pet clothing, and bedding. Outside of the pet-specific options I was able to research, I found that hemp seed oil can produce non-toxic diesel fuel, paint, detergents, inks, and more."

Not sure how this related to Canopy - they are NOT in the hemp business. Canopy is in the medical marijuana (now recreational) via dry cannabis and oil products delivering cannabinoids.

This is a very different business than providing hemp seed oil and hemp fibers for clothing, etc. As far as I know Canopy has made $0 investment in these other areas and has no plan to do so. Yes, there are many hemp products out there - but that is based on hemp plants bread and grown for industrial purposes. That is very very different than growing cannabis to maximize cannabinoid content.

The Martha Stewart partnership was positioned regarding developing products to deliver cannabinoids to pet and later people.

The fact that Daniel bring hemp into the discussion about Canopy makes me question his understanding of the company and the market. And indicating that he has just researched/learned about hemp oil and hemp products raises more questions since these products have been around (and legal) for many many years.
PT Larry profile picture
@jeffreyt2000 Seems to me that if CGC is doing a hemp industrial park, then growers will be delivering hemp to them for processing.
@PT Larry First, I apologize for my poor wording in my prior comment - I should have been more clear in Canopy's involvement and non-involvement in the "hemp business".
yes, hemp for the NY facility will be sourced from farmers in the region. So the cost of bulk hemp becomes a expense for that side of thier business.
That said:
1. the majority of their business (and planned growth) is in the marijuana/THC side
2. they are making notable investment in the hemp/CBD side - primarily for the extraction of CBD oils and creation of related products for health purposes
3. They have not made any announcements regarding getting into the product areas around usage of hemp fibers, raw hemp oil, etc. - areas outside of CBDs.
I haven't seen anything that indicates Canopy is moving into the end use of industrial hemp other than the potential delivery of the byproduct leftover from the CBD extraction to other partners who will take it from them for those purposes (Ex. the NY facility is in "an industrial park" for full hemp product usage).

That is why I question the author bringing up these areas - "pet clothing, and bedding" and "diesel fuel, paint, detergents, inks, and more". It is not pertinent to Canopy's clear business model of THC based products (from marijuana) and CBD based products (from hemp).
Moving into industrial production of hemp products in non-CBD areas has never been stated by the company and would distract from the core business.
PT Larry profile picture
Agreed. The hemp end of CGC's business is open. Wouldn't take much to set up a subsidiary, but we don't know. Time will tell.
Timothy Stabosz profile picture
SQBG 20% holder Prescott Capital reported after the close today as having bought 220k shares in the open market at $1.47 on Feb. 28th. I’m wondering if they stop at this ownership level, or keep on going??
Darren McCammon profile picture
Cotton, copper, coffee, cannabis, all commodities.

Life is Good T-shirts, CopperChef pots & pans, Starbucks Double Frappacino's, Tweed products, not commodities.
PT Larry profile picture
@Balaland Guess what I'm saying is that marijuana leaf will also be a commodity.
@PT Larry , Leaf also has Huge amounts of THC , the flower has the most ..
Leaf rolled into MJ. cigs. has been happening since caveman days .
The only real commodity , to Me , is the Hemp plant ..
Hey , I could be wrong here ...
Hemp would have more of a manufacturing demand , while MJ. has different varieties , and these prices would change on different strains relating to supply and demand issues , yes , except there are so many variations of MJ. , that I just can't see it being traded like a Commodity like Hemp would be possibly ..
Yes , I can see Hemp as a marketable commodity like Cotton , sugar , Etc ...
My Thoughts only ..
PT Larry profile picture
@Balaland A commodity is a raw material or an agricultural product that can be bought or sold such as copper or coffee.

If certain marijuana companies, with brands, control the retail end market and a producer finds himself with surplus marijuana, then a situation exists that creates a market that enables the producer to sell and the "brand" company to buy.

This is what I believe will happen to marijuana. This is not to say that Aurora's brands will not succeed; Tilray's, or Atria's, or anyone's.

Because MJ is regulated the buyers and sellers will need approvals, in my view.
@PT Larry , That's what I was saying ..
Hemp can , and will be used as Materials for manufacturing products , just like Cotton and the likes ...
THC laden MJ. stalks maybe used for Bio Fuels maybe , but that's about it ..
Remember , the stalk also contains THC , and that will not be included into the Hemp market's supply chain .. Imo ... Just sayin ..
My thoughts ..
PT Larry profile picture
@Balaland A win for Aphria is a win for all cannabis producers.

A consideration is whether cannabis becomes a commodity, and I believe it will. This brings the winning positions to those with supply chains; retail and brands.
@PT Larry , Hemp will be a Commodity , because of it's industrial value .
Pot prob. not , because it will still be regulated .
My Thoughts ..
Good thoughts Balaland. Here's mine...We know that the hemp industry was thriving early in our country's history. For political purposes the entire industry from industrial to medical and recreational was just shut down.

What if that would never have occurred? What would the market have grown to? These are the questions that we grapple with today. Imagine the alpha of stock movements and valuations then, multiplied by the vast size of markets today and the electronic speed, robots and innovation that we have today in the markets.

I believe this one plant, legal now, will be a mega game changer for investors. The scope is too big to pin our hopes on 5 or 10 or even 100 companies. An astronomical number will flourish in one way or another.

Real medicines and treatment, industrial, recreational and ancillary industries like security, transportation, logistics will all benefit.

That's why it's important to pick your winners now and hold for the long term.
@bobtrucks2204 , I Responded to your post , moderators never posted it ..
PT Larry profile picture
@vc7416 Agreed, but there is a down side. Herbicide use contaminated the soil and will remain in it for up to three years. This contamination has a negative effect on the growth of hemp.

The cultivation of hemp requires no herbicides, or anything else.

I suspect the chemical companies should be able to create a product that will neutralize the effects of herbicidal soil, and in a few years we will again enjoy rich, uncontaminated farmlands.
@PT Larry , Aphria gains Health Canada approval , Bye , bye GGB ...
vc7416 profile picture
Daniel - "When compared to cotton, the benefits of hemp are clear. Just 1 acre of it is enough to account for the same amount of fiber as 2 to 3 acres of cotton, plus it is considered stronger and softer than cotton, and it does not mildew like cotton does. Applications on this front aside, there’s also the issue of accessibility. According to the aforementioned link, cotton only grows in moderate climates, while hemp can be grown in all 50 states, and every acre of it can produce the same amount of paper as 2 to 4 acres of trees."
WOW, I didn't know that. So we can save our trees and get more product per acre - who doesn't like that. Now I don't like Martha S, never have. However, if she can sell our CGC products to her customers then bring her on. And yes I have owned CGC since June 2017 and I'm up almost 500%.
branding, they use to a sign of quality and effectiveness not anymore, every fly by night and his dog claim for branding....hard to call it nowadays differentiation.....
Ritalin dude - legal cocaine for your US kids :)
@User 48830506 , Yeah , don't forget those Anti-Depressants + Adderall for Adjusting purposes .. ( Adderall ='s Mind Altering Amphetamine ) ..
While idiots who primary concerns are
tax revenues and getting reelected let's legalize heroin and cocaine. Health and safety be damned. Unbelievable, simply unbelievable.
Aussie...somebody is paying big bucks....bigger than pharma lobby....
PT Larry profile picture
@Aussie2009 Heroin and cocaine are a bridge too far. Marijuana legalization will bring in large amounts of tax revenue while disrupting much of the pep, crystal meth, and opioid businesses, and too, provide a path out for heroin and cocaine users. MJ will no longer be criminalized; no hassle, no court costs, no jail time.
@PT Larry , MJ. is a " Gateway " drug , because many who smoked it , were also around those that did other things to Get High ..
That exposure promotes experimentation , thus a gateway to other drugs ..
That's a Fact ...
I am not sure how I feel about this. Not sure you can get anymore commercial. That should say a lot about society and how superficial a product can be, quality can take a back seat.
Darren McCammon profile picture
Ever owned a George Foreman grill? It's a great product, we have two. But we probably wouldn't have given it a shot and known that if George didn't stump for them on those infomercials.

We also own an InstaPot and knowingly paid 2-3 times what a normal crockpot cost. We enjoy a quality and versatility the no names and lesser brands don't have. We made the right choice.

We also own a Tiger rice cooker rather than some other brand. We got it as a gift for our wedding and its been making great rice for 30 years now. If it ever breaks I wouldn't think of buying another brand, and yes even if it costs a multiple of the others. I even wrote what was effectively a love letter to the Tiger people telling them how impressed I was their product was still going strong 30 years later. The way things are going, it might just end up in my will to my daughter.

Commercialization and branding don't have to be superficial, in fact many times they stand for superior quality and effectiveness. Pay an extra $50 to have no effort superior tasting rice for 30 years, yeah that's a no brainer.
was reading ....it is going to be called FELON brand....beware STZ is a very criminal entity....do your DD ...
Darren McCammon profile picture
Your opinion would have more credibility if it contained facts and links for why it was formed.
Darren McCammon profile picture
I guess I will point out some obvious things about the Canopy/Martha Stewart deal just in case they aren't.

Snoop and Martha have a popular cooking show (believe it or not). Anyway, the clips I've seen are pretty entertaining. Snoop already has a deal with Canopy and provided the introduction. Canopy and Martha are a match made in heaven if you ask me; instant credibility for Canopy skin care and animal products with a non-stoner mainstream crowd. It's also rather fitting that marijuana (a still illegal substance in the US) and Martha (a convicted felon who did her time) both move forward by helping each other.

Martha Stewart is a major shareholder of their Sequential shares stemming from the purchase of Martha Stewart Omnimedia. Sequential Brands/Martha Stewart will likely be assisting with marketing and distribution of a line of animal and potentially skin care products for Canopy, getting a cut of the take for doing so. I'm not sure whether they will be Martha Stewart products, Tweed by Martha Stewart or what, but they will be developed and manufactured by Canopy.

For example, the George Foreman Grill wasn't actually developed or made by George Foreman, he was a hired celebrity promoter who got a cut of the take (and it made him way more money than boxing ever did). Also, if you think this isn't all happening without Canopy already having such products lined up waiting for regulations and legalization, I've got a bridge for sale.

Anyway, the point is Cannabis is going mainstream, and this is just another example of Canopy coiling the spring. When the States Act or some other form of legalization occurs, look out, Canopy is going to hit the ground running.
You have just shattered my George Foreman image of him in his shed with a soldering iron, hammer and boxing gloves inventing the grill :(
Thank you for my early morning smile.
Darren McCammon profile picture
I would also point out the pet medical market in the US is estimated at $9 billion and growing (think anti-anxiety, cancer treatment, inflammation, etc.). And that it's easier to get pet meds approved than people meds, so starting there and eventually moving to people would be a reasonable strategy.

So we potentially aren't just talking CBD additives, hemp fiber beds and leashes.
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