You’re reading this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.
Canopy Growth reported its fiscal Q3 today. The report was better than what analysts had expected for both revenue and adjusted EBITDA, but the stock fell. Sometimes stocks sell off due to profit-taking, but there is none available for almost all Canopy Growth shareholders. The stock is still above its all-time low set in July, but it is down 21% in 2024 after falling 78% in 2023.
The company continues to burn cash, even as it cuts expenses. While the Canadian cannabis market certainly grew in the three months ending 12/31, Canopy Growth saw its revenue shrink. The company’s operations used C$32.6 million during the quarter, a bit worse than it consumed in Q2. The tangible book value decreased to C$340.2 million. The stock trades at about 1.5X that level. Net debt is C$421 million. A recent equity sale, now under water, will boost tangible book value and reduce net debt slightly. The enterprise value, then is about C$917 million. This is very large relative to the projected adjusted EBITDA of -C$18 million for FY26.
We have shared negative views on the company in this newsletter before. Most recently, after the Q2 report, we said that investors should not buy the dip. The stock, then $5.21, is now below $4. In that piece, we suggested that investors choose an alternative LP. The ones that we have mentioned in this newsletter have been Cronos Group, Organigram and Village Farms. All of these trade cheaper relative to tangible book value and have net cash or have less net debt as a financial burden than Canopy Growth.
Here is how Canopy Growth has done in 2024 relative to these alternatives that we have preferred:
In my model portfolio at 420 Investor, I exited Cronos Group and Organigram this week, though both are in the index I am trying to beat. I still have a very large position in Village Farms, which trades at 0.4X tangible book value.
Canopy Growth has declined, but it’s not yet attractive in our view, as the company has money-losing operations with a substantial debt-load. As we said last time, there is always the chance that Constellation Brands steps in an buys them, but we don’t see this happening at this time.
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Alan & Joel