Canopy Growth Has Proven Throughout 2021 That It Is Still In Pole Position To Win The Global Cannabis Race

Last week, we published the first articles from a series that covers 7 North American cannabis companies. The companies that are highlighted are expected to record strong growth in 2022, are considered to be misunderstood opportunities, and are worth being aware of in 2022. 

After having a rollercoaster type of year, we are going highlight Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) as the third company in the series. 2021 has been a challenging year for the Canadian Licensed Producer (LP) and we believe the following 10 developments are significant to the story.

1. In October, Canopy Growth purchased the right to acquire Wana Brands, which is a leading cannabis edible brand in the US. The company is executing on a strategy that is centered around purchasing the right to acquire high-profile US multi-state operators (MSOs) and brands. Canopy Growth’s strategy in the US is reliant on the passing of federal legalization to legalize or decriminalize cannabis and are favorable on this aspect of the story. 
2. Last month, Canopy Growth’s cannabis retail operation, Tokyo Smoke, entered into a partnership with Uber (Nasdaq: UBER) to allow online cannabis orders to be made through Uber Eats in Ontario. We are bullish on the potential value that can be generated through the relationship and expect the partnerships to prove to be a revenue generator in 2022 and beyond.
3. When it comes to the legal cannabis opportunity in strategic international markets, Canopy Growth should record growth from this vertical of the business in 2022. In previous years, the Canadian LP had to write-off more than $1 billion of assets that were a part of its international expansion growth initiative. We believe the amount of hype that was associated with certain international markets and verticals negatively impacted Canopy Growth’s due diligence strategy and are of the opinion that not enough research was done the assets that were being acquired. 
4. Another challenging trend for Canopy Growth has been related to having too much supply of cannabis. The company had to shut down several production facilities that totaled more than 1 million square feet in an effort to be more in line with the existing demand for cannabis. Thanks to Constellation Brands’ (Nasdaq: STZ) $4+ billion investment in Canopy Growth, the company is allowed to make mistakes of this size. Since then, the market has punished Canopy Growth more for mistakes related to not becoming profitable. The COVID pandemic has put additional pressure on the Canadian  LP and we will monitor how the business tries to execute on several core growth initiatives in order to become profitable. 
5. In November, Canopy Growth announced changes to the management team with the departure of Mike Lee, Executive, Vice President and Chief Financial Officer (CFO), and Rade Kovacevic, President and Chief Product Officer (CPO). This not the first time that the Canadian cannabis company has made significant changes to the management team and will monitor how the new team is able to accomplish core growth initiatives like becoming profitable.
6. Earlier in the article, we stated that 2021 has been a rollercoaster type of year for Canopy Growth. So far this year, the Canadian LP has reported weaker-than-expected quarterly financial reports. The market is highly focused on Canopy Growth’s ability to generate a profit and the stock has been punished for its inability to do so. Last month, five well-known broker-dealers significantly lowered their respective price targets on Canopy Growth. The company was downgraded by a few broker-dealers and some price targets were cut by more than 50%. This is an ugly trend for Canopy Growth and one that we will continue to follow closely in 2022.
7. During the summer, Canopy Growth and Seth Rogan backed Houseplant mutually agreed to end their relationship. The development surprised the market and comes after the companies operated a successful joint venture for three years. According to Rogan, the termination of the joint venture agreement should not be viewed as an exit from the Canadian market. Going forward, some Houseplant cannabis products will continue to be available to retailers in Canada (through the end of September), but we do not expect the company to work with Canopy Growth again. 
8. Another major development for Canopy Growth that was announced in the summer was the acquisition of The Supreme Cannabis Company in a transaction that was valued at approx. $435 million on a fully-diluted basis. The acquisition is expected to immediately prove to be accretive as it will improve Canopy Growth’s position in the Canadian recreational market due to the strong consumer demand for Supreme’s 7ACRES brand. We believe the combined company is better positioned to capitalize on the global cannabis opportunity and will monitor how this aspect of the story advances in 2022 and beyond. 
9. Another celebrity relationship that Canopy Growth has is with Martha Stewart who was appointed as its official strategic advisor in the summer. In this role, she will expand upon her existing position with the company by leveraging her vast knowledge of product development and branding expertise to provide the company with important guidance on initiatives that range from product innovation to format development. Martha’s appointment comes on the heels of the successful launch of Martha Stewart’s portfolio of CBD products. Canopy Growth selected Southern Glazer’s Wine and Spirits to be the select distributor for Martha Stewart CBD across the US. Southern Glazer’s is a leading global distributor of alcohol and we are favorable on the amount of awareness it can generate for Canopy Growth. 
10. A few years ago, Canopy Growth acquired a majority ownership stake of BioSteel Sports Nutrition, a leading producer of sports nutrition products. Since then, the company has expanded the roster of celebrities that sports nutrition beverage has relationships with. From some of the best NBA basketball teams to Patrick Mahomes, BioSteel’s beverage line has been gaining considerable traction in the sports world. Through agreements with the Brooklyn Nets, Philadelphia 76ers and Toronto Raptors, expect the beverage line to gain significant visibility with consumers and we are bullish on this aspect of the Canopy Growth story.  

If you are interested in learning more about Canopy Growth please send an email to support@technical420.com with the subject “Canopy Growth” to learn more. 

For the fastest access to data on the relationship between Canopy Growth, you can sign up for our free newsletter!

Share

Tags

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Top Stories