Canopy Growth is Valued at Less Than $1 Billion (USD) and is no Longer a Unicorn!

In 2014, Canopy Growth Corporation (TSX: WEED) (Nasdaq: CGC) completed a go-public transaction and has since become one of the best-known cannabis firms in the world.

Due to the management team’s ability to continue to advance the story, we classify the Canadian Licensed Producer (LP) as a company of firsts. Canopy Growth was the first Canadian cannabis company to acquire a competitor (Bedrocann in 2015); The company was the first to receive an investment from a Nasdaq-traded major alcohol conglomerate; Canopy Growth was the first company to receive a more than $1 billion investment; and the list goes on.

Can the Management Team Turn the Business Around?

For the first time in several years, Canopy Growth’s market capitalization has fallen below $1 billion and we believe our readers need to be aware of the developments that led to this.

1. In late April, the management team announced a series of initiatives to lower costs and drive efficiency as part of its plan to accelerate its path to profitability.
2. In May and June, several broker-dealers reiterated a Sell rating on the Canadian Licensed Producer (LP) and we consider this trend to be a bearish indicator
3. In late May, Canopy Growth released quarterly earnings which missed expectations. The company’s net loss was much larger than expected which we attribute to a 36% decline in recreational cannabis sales (when compared to the same period last year). After the earnings report, Cowen and Company slashed its price target to C$6.50 from C$12.50
4. A few weeks ago, Fitch Ratings downgraded its debt rating on Canopy Growth and said there is uncertainty around its ability to sustain its capital structure. The ratings firm cut its long-term issuer default rating to CCC from B-
5. After Fitch’s downgrade, Canopy Growth plunged lower after reaching an agreement with Constellation Brands Inc. (Nasdaq: STZ) to convert about $198 million of convertible debt into stock. According to the transaction, the stock issued will have a floor price and a maximum price at US$2.50 and US$3.50, respectively

Where Does Canopy Growth go From Here?

The last year has been challenging for Canopy Growth and the market seems to have lost confidence in the management team’s ability to make the business profitable. In the near-term, we believe the company faces a few headwinds and will monitor how the story evolves from here.

In late 2021, Canopy Growth sold its Germany cannabis asset and we were surprised by the development. Going forward, we would not be surprised to see the company acquire additional US cannabis assets as the management team remains highly focused on capturing market share once federal regulations allow it to do so.

If you are interested in learning more about Canopy Growth’s downturn, please send an email to support@technical420.com with the subject “Canopy Growth Freefalls” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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