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Weak Oil Sales And High Inventory Will Continue To Weigh On Canopy Growth

Mar. 05, 2020 12:44 PM ETCanopy Growth Corporation (CGC), WEED:CA16 Comments
Gary Bourgeault profile picture
Gary Bourgeault


  • Canopy Growth isn't likely to repeat its last performance in the quarters ahead.
  • High inventory levels will remain a major challenge for the company.
  • Weakness in its release of new products has to be solved in order to take advantage of derivatives.

Canopy Growth has yet to prove it can turn things around.Source: Toronto Star

Even though Canopy Growth (NASDAQ:CGC) managed to put together a decent quarter as measured by recent cannabis standards, there are still some significant underlying issues that will likely put pressure on the company going forward.

In this article we'll look at its high inventory levels and historical inability to identify what the cannabis market wants and at what level, such as with CBD oils and capsules, along with it losing some German sales that will go to Aurora Cannabis (ACB) in the current quarter, and the possibility it may never reach the potential it saw when it acquired the rights to buy Acreage Holdings.

Inventory levels will remain high

MKM analyst Bill Kirk has taken a contrarian view of Canopy Growth, primarily citing the high inventory levels that aren't going to be drawn down anytime soon. He noted that since the latter part of 2017, Canopy produced 115,000 kilograms of pot beyond what it sold.

He stated that the overall legal cannabis market has a run rate demand of about 180,000 kilograms. Kirk stated that if Canopy were to stop production completely at this time, it would take approximately 30 months to sell through its inventory in Canada.

The company also said its inventory will continue to increase before it reaches peak levels.

Unfortunately for Canopy Growth, this isn't only the result of overly ambitious production capacity, but also a history of not accurately identifying what the market wants in certain product categories, such as oils.

Even though investors and analysts touted Canopy's higher priced products in the last reporting period as a significant tailwind, with the high level of inventory and its weakness in identifying what the market wants in some categories, the company appears to be headed for more problems in the quarters ahead.


This article was written by

Gary Bourgeault profile picture
I am a former investment advisor and owner of several businesses. These days I invest only for myself while continuing to write on a variety of financial and economic topics.

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 (16)

Are we gonna see 2s?
belgium profile picture
Lets hope so! What a steal would that be!
The only steal is of investors!
belgium profile picture
Money can be made either way, a concept that seems hard for you to understand. Embrace the volatility and stop with your BS. This isn’t ihub, or at least it wasnt....
By the time CGC is allowed to take over Acreage Holdings (federal legalization) - Acreage will not exist.
Their cap is already at 300 exact the amount they received for the deal w CGC...smoke
I’ve been building a position in OGI. For many fundamental reasons that should be known to all of you OGI could easily double your money the next 12months. They sell “premium” pot that is not in over supply. OGI has a strong ballet sheet as well. Thoughts?
Dives in Aeternum profile picture
"As for federal legalization in the U.S., I don't see that happening for many years, if ever." It'll definitely happen. Trump will win in 2020, doubt it'll occur then, but in 2024 federal legalization will happen if a democrat wins.
It will be to long to hold a bag. My 2c.
belgium profile picture
Better than industry expected numbers, just announced cashburn solutions, and a bank account big enough to flush out the competition.

A couple bankrupties and there will be more market share to scoop up.
you lost me at "i dont see legalization happening for years, if ever". irs tax laws and revenues for municipalities alone all but guarantee us legalization. we just have to wait until there is a real democracy represented in the whitehouse. if youre saying thats never going to happen, then god help us all.
I am hoping Canopy can get things sorted out over time. My cost per share is high. Even so, I am hesitant to buy more even though the price is low right now.
newchicago09 profile picture
The author never replies. ACB pump and CGC badger. Go figure. This guy was recommending ACB as a buy at 10 USD, that’s all you need to know about Gary.
mrbcoinbase profile picture
wait what when did you sell your position in Aurora? You've been touting that forever, I understand you hating on canopy with the hopes that it helps Aurora but come on
falainwest profile picture
Buahahah. You beat me to that.
Standish.2018 profile picture
The other oil has a futures market!
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