cog·ni·tive dis·so·nance: the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change.

The company Constellation invested $5 billion in (Canopy) is not performing near expectations.

The US MSO that Canopy invested in (Acreage) with a pathway to control, is not performing near expectations and had to be bailed out, after needing a 60% per annum interest short term loan.

Canopy looks to buy a company (Aphria) whose performance, in all honestly, is Ok and good on peer comparison but WELL UNDER where Bruce Linton sold STZ that their investment’s performance would be at this time.  Aphria is not near 30% market share that Bruce was suggesting Canopy would control.

AND, if the C$9.00 rejected is accurate, at a lower acquisition price (approximately $2.6 billion) than they already invested in Canopy.

No doubt Constellation would have been repricing their options again on the acquisition.

AND the acquisition would likely trigger massive impairments of cultivation assets. IF Canopy was looking to acquire Aphria, it is a very serious indictment of Canopy’s present production platform.

• Last Q, Aphria was harvesting at 52,000 KGs/Q and combined sales of Aphria 13,000 KGs and Canopy 12,000 KGs (March 31. 2020 as they stopped reporting KGs sold in June 30, 2020).

• Canopy has allegedly already backed out of an off take with PharmHouse as the contracted price to purchase cannabis is well above market price. 

• Niagara facility would be gone.  Smith Falls might be fully repurposed. The JV in Mirabel with the Quebec partner would be very fragile. Newfoundland, a rounding error but with tax strings, would likely stay in short term.

AND the acquisition would likely have to go through antitrust scrutiny.

AND Constellation, in order to make their second investment in Canopy, took out debt and cut their dividend.

Canopy’s operations are not holding Canopy share price where it is, it is the STZ investment that is.  Operationally on financial metrics it is a pretty easy argument that Aurora is doing better than Canopy.  Yet Aurora has the vultures circling overhead as they do not have the cash nor the “brains” that STZ invested in Canopy.

Given how badly Canopy is doing in Canada, one can only wonder how their foray into the US market will go with Biosteel, Martha Stewart, and CBD, especially when they do not provide segmentation of financial information around those investments. It is way easier to spend money than to make a profit, Canopy’s Canadian launch of recreational cannabis does not show any operating prowess.

STZ is pregnant with cannabis. If they toss in some more money for Canopy to acquire Aphria it will show they are “pot committed”.

Given the apparent interest Canopy has in Aphria, I would be worried if I were a Canopy shareholder and they did not buy Aphria now. Can the turnaround path Canopy are on make it to profitability with existing assets?

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author has a position in Aphria and will not start one or divest in the next five days. The author has no position on CGC, STZ, ACRG or ACB and will not start one or divest in the next five days.