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Canopy Growth: Hunkering Down And Cutting Fat

Cornerstone Investments profile picture
Cornerstone Investments


  • Canopy Growth has been hunkering down to survive the latest rout caused by COVID-19.
  • The company has shut down its largest greenhouses, fired hundreds of workers, and scaled back from several international markets.
  • We believe these are just the beginning of a long-term retreat and will lead to a much smaller and focused company under the new CEO.
  • Investors should remain on the sidelines until things clear up and a new strategy is formed by the new management team.

Canopy Growth (NASDAQ:CGC) is the problem child that Constellation Brands (STZ) is desperately trying to find a way to bring it back on track even as Constellation exercised 19 million warrants on May 1 to increase its stake in the world's largest public cannabis company to 39%. Canopy's new CEO came from Constellation and he is taking aggressive actions to scale back redundant operations and cut back operational costs. With the challenging market conditions caused by COVID-19 likely to persist into the rest of 2020 and beyond, we think it is prudent for Canopy to hunker down. We are Neutral on Canopy as the cannabis sector is facing a double whammy of pandemic and investor apathy after an already disappointing 2019. We fully expect Canopy to lead the pack when it comes to recovery, but there remains limited near-term visibility at this juncture.

(All amounts in C$)

Constellation Doubling Down

In May, Constellation exercised 19 million warrants to acquire $245 million of additional Canopy shares at $12.98 per share. These warrants were issued when Constellation made its initial investment in Canopy in 2017 and had the same exercise price as it paid in that deal. After the latest purchase, Constellation owns 142 million shares, another 139 million warrants, and $200 million of convertible senior notes of Canopy. Clearly, Canopy is becoming too large to discard at this point for Constellation. Before the latest warrant exercise, Constellation already invested twice in Canopy:

  • October 30, 2017: Constellation announced its initial investment in Canopy whereby it acquired 9.9% for $245 million at $13.0 per share; the same number of warrants were issued at the same price.
  • August 15, 2018: Constellation announced another ~$5 billion investment whereby it acquired 104.5 million shares of Canopy at $48.60 per share, a 51.2% premium to Canopy's closing price; Constellation also acquired

This article was written by

Cornerstone Investments profile picture
We are your best guide to cannabis investing. Read our 2021 Cannabis Sector Outlook here. We also provide in-depth industry analysis and coverage of 70+ cannabis stocks to help you get started.

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.

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Comments (35)

bazooooka profile picture
@Cornerstone Investments With STZ investing again do you think this one has limited downside from $15/$16 range? STZ seems willing to protects their investment.

What pps this Summer would you be a bull vs hold? $10+ for almost all of March seems like a good floor. I'd think another dip after today and your back to April levels.
With this virus, this could speed up legalization in the US. States could get some money back with the revenue from taxes. Just a thought.
Green, you are an outstanding citizen , you care about state taxes and not your pocket!
Doc 224899 profile picture

Maybe that's what the "nice" Canadians call it.
Jmerlo, the time for weed easy money passed. Now is "regulated" , politicians that approved the moves over the last decade around the world, had no doubt many incentives for a lucrative new life after retirement from public office. CGC STZ ACREF clearly a sample of that, MO CRON not far behind.
Moats and Income profile picture
Canadian cannabis was always hype/spec and uphill Money was made and harvested by 2018....

These are now cult stocks with most investors underwater and hoping for a miracle that will never come...

The virus pullback to the overall market provides plenty of escape routes in quality companies to regain your lost speculative capital...

Just look at oil....it’s not going away, and most big oil company’s stocks slipped to prices not seen in decades...they will recover...IMO is a 2 bagger...OXY is a 4+ bagger...

Save yourselves...move your pot money into oil...:))
p0zz profile picture
Thats the most backwards ressonating Ive ever read. Weed is old news, oil is comming back stonger than ever? Let me remind you we are in the year 2020
@Cornerstone Investments ,
$STZ's Double-Dog downgrade won't help things …
STZ CEO blamed Litton , Yet he was on the Board the whole time …
" Smokin in the Board Room " , yes indeed …
Oh , any Idea on the STZ Current Cost-Basis on their CGC Stock price now ? ? ..

Speculation only of course ..
Great Read ...
Balaland....did you hear of Edwin Moldauer? STZ and US gov smoked a SOX Sarbanes joint jointly:
@Boiseboy ,
Heard of yes ..
Wong Ho has offered up some Info. along with some links ..
As well as you it seems ..
Lots of CEO Chef's out there , cooking up books ..
Some are in the S&P 500 , eventually they get caught , only to pay small fines , and then wash, rinse, and repeat ..
$WFC comes to mind …
Now on that front , one has to ask ;
#1. You need to open an account with a Soc. Sec. # , right ?? ..
#2. Hmmm , where did they find these #'s ?? ..
#3. Speculation of course , maybe S.S. #'s from Investment Group Funds that they manage ?? ..
Could be , who would know anyway ..
Just No Info. on this , as this is Only a Speculation , and By No Means a path of evidence to where these accounts actually were " Born " , for that Incentive program ..
Personally , this light of day may never be seen …
Comment boards sometimes can be great for Speculating , yet , provide No Proof to what actually happened here …
Just sayin here for example ..
Speculation is based on guess not facts, casino is fun at least. All US economy is based on CEOs cooking books, higher the SPs, more money flows in the economy and peoples pockets an otherwise an economy in deficit. Lucky we have China to fund the trillions of debt. The other 5, US eyes, have an inflated real estate market boosted by uncontrolled immigration, hardly productive economies. The problem of cooking the books is that always is at the expense of someone else.
Weed legalization in Canada is STZ same dwarf as they did in Australia and New Zealand with the Wine Act, in the name of public safety and quality the gov regulated the industry with lots of red tape, diminishing competition, blocking exports, lots of new standards to comply allowing permission to print money to only few select, at the expense of the public. See what happened in Australia where for years was a wine glut selling unlabelled bottles for 2-3 dollars, driving to wall producers and growers alike. More so STZ was caught there ...again...cooking the books. By the time STZ left Australia the industry was disaster. Same will be with weed in Canada.
belgium profile picture
“Canopy made the following adjustments to its global operations:”

They “hedged” their decisions, or at least CA and US farming, basically went for cheaper option. Scratch their ops/assets, lend/invest in “partner”.

Biggest restructuring/fat trimming that i hope is next is adjusting acreage deal.
belgium....Acreage ..lol... a bunch of politicians that printed themselfs public cannabis licences before retirement so to be sold later and make a buck on the side.
CGC shareholders were sold out by its former management and dirty politicians to STZ .....like Vincor before Brl Hardy Nobilo Mondavi....Modelo
alipari33 profile picture
Does speculation count for anything though? I mean CGC is basically the blue chip of all weed stocks backed by STZ (Corona, Modello). They are about to release weed-infused beer this summer and weed is already legal in some states. It is only a matter of time before it is legal nationally. If you put money in now and just leave it you are going to at the very least triple it within a couple of years. $15 isn't cheap? It's 52 week high was $48. Starz Constellation Brands has more warrants they can exercise too. If that wasn't a vote of confidence a couple weeks ago, what is? They are financially backed.
It is a long running Ponzi backed by goverments and courts. Yes courts.
The problem with beer is that we know from the rec legal cannabis states in the USA that drinks only make up a very tiny portion of the market. Its also very hard to make one that tastes good. So looking for lightning to strike twice with accomplishing 1) a decent taste and 2) a hit brand is a very tall task, IMO.
why invest in CGC, may as well park your money on STZ
STZ did already 1000% in last 5-6 years! Can you believe it?
Dumb Wealth profile picture
These weed producers have weak branding and differentiation.

Yeah they have logos and names, but other than varying % of THC and CBD very few can tell the difference between one strain and another. The differentiation might be in the consumables market, but that's still evolving. So where's the value added in the chain?

Right now, these companies are basically commodity producers. They might as well be selling corn or Christmas trees.
I agree! I hesitate to take my losses and afraid to add and am not alone I’m afraid.
They are not even like commodity producers. They are more like farmers: they grow plants, package them and sell them. except unlike farmers they can’t make any profit.
youngdividend profile picture
Nice Bruce, your dumb decisions in the past by over paying for useless assets resulted in more unemployment. No idea how he was able to get a 5 Billion dollar investment from Constellation.
STZ money laundering
colorado buff profile picture
Bruce did some good things too. Without his vision and team he wouldn’t have gotten the 5 billion. I do agree that he overpaid for assets and like a kid in the candy store he wanted all the candy as opposed to focusing on maybe chocolate first and then expanding.
Dont be a pothead and investor at the same time. End of story. This has always been a shitty investment, especially when the price was effing ridiculous. I am a smoker but I dont invest in forever failing tobacco companies. This crap is even worse. Maybe 10 years from now when marijuana industry is somehow established
I agree let the overhype wear off as well so the stock price is alteast reasonable
p0zz profile picture
Off the bat: what would you consider a reasonable price..?
This is the biggest co in a totally new industry. I wish you to hear yourself 10 yrs from now. And feel as shitty as you think this investment was.
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