The path to the future is derived from the past.
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I am seeing the same people that swore Canopy was going to rule Canadian cannabis latch on to how they are now going to rule recovery drinks, US CBD and other assorted markets.
It is easy to spend money. And Canopy has spent like a champ.
I would like to know what metrics these savants are using to show the progress of Biosteel, Martha Stewart and Shop Canopy?
What is Biosteel’s “monumental growth”? What is their market share related to peers? What was the purchase price? How are the spokespeople getting compensated?
What is Shop Canopy’s market share? What is its growth?
Canopy has stripped a lot of its less than flattering metrics from their MDA. Last quarter KGs sold hit the metric dustbin. If the metric isn’t favorable, discard it: Cost per gram, KGs sold, and Average Selling Price,… gone, gone and gone.
Canopy provides zero segmentation in their financials on these new projects.
The same folks that simply insisted Canopy were going to rock a 30% Canadian recreational cannabis market share are again telling you, without any physical proof, to trust the “new” management. Problem is their CEO was the Chairman during legalization of rec. So how “new” is it really?
If Canopy was in talks with Aphria what does that say about Canopy’s Canadian production platform? Aphria produced 2x the last reported CGC and Aphria combined KG sales. If they are looking to buy Aphria, Canopy’s entire grow in Canada is more suspect than they let on. IMO they would have to cull almost all of Canopy’s cultivation assets. If I were invested in Canopy, I would be worried if it is going to cost north of C$ 2.6 billion to buy Aphria for a quick fix, if they do not purchase Aphria what is realistic point of profitability, if there is one.
Before pulling metrics, I had their cost to produce a gram:
- My Adjusted Production Costs per Gram Sold has ranged from $4.54-6.83/gram and averaged $5.64/gram over a Trailing Twelve Months.
The above was from March 31, 2020 quarter before they yoinked KGs sold as metric.
Canopy is presently buying third party cannabis and looking for more. How much has not been disclosed.
So, before you trust their forays into USA and recovery drinks, ask yourself where is the proof (other than news releases with little detail) that these products are gaining traction?
What are their Sales and Gross Margin trends on these enterprises? Does GM cover the SGA and celebrity endorsements? Do they have any targets that they will share or is it “trust us”?
I think the sports drink CBD market will be big, but Gatorade and Powerade (when Coke & Pepsi are allowed to make their move in CBD) will come from a very different market share, existing distribution and experience level than Biosteel.
The US CBD market is a mess of small brands and clutter. Charlotte’s Web, an industry leader, has been treading water for a year before the bolt on of Abacus.
So far, the past for Canopy is:
- Canadian medical performance
- Canadian rec flower and oil performance.
- Canadian 2.0 performance
- NY Hemp performance.
- Acquisition performance which, without segment disclosure, is impossible to distill.
Cutting SGA costs are within a company’s control. Conjuring sales and a stable gross margin depend on outside factors and the markets acceptance of your product.
You may accept the premise of the hype (I like the premise of the US is going to be a massive market) but where is the proof of MEASURABLE execution in this market?
If you are a “trust the hype” investor have at it. But there needs to be some REAL proof that the hype is gaining ground. And signing a roster of celebrity endorsers is not it. In fact, that can be a very expensive launch.
This is a company that has missed several EBITDA and Sales guidance’s long before COVID. And they also provided, for a year, a GM Target for March 31, 2020 of 40% and then claimed to have achieved it citing ADJUSTED Gross Margin (which was never the metric) in its place.
C-Suite playing loose and fast with guidance metrics like this is not a good look.
Let us see how the newly announce distribution goes. But let us see some proof before we proclaim that a company that has executed poorly on several fronts justifies the renewed hype. I think “trust Canopy’s execution with Constellation’s oversight” might be a tad overplayed based on results to date until real MEASURABLE progress surfaces.
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 or STZ and will not start one or divest in the next five days.