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Does Canopy Growth's Cannabis 2.0 Delay Really Matter?

By Keith Speights - Jan 21, 2020 at 9:10AM

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The big Canadian cannabis producer won't launch its new beverage products on time. Is it a big deal or nothing to worry about?

Canopy Growth (CGC -5.96%) started talking publicly about cannabis-infused beverages more than two years ago when Constellation Brands made its first investment in the Canadian cannabis producer. At the time, though, the company couldn't sell cannabis drinks because regulations hadn't been finalized for legalizing cannabis-derivative products, including edibles and beverages.

Health Canada's cannabis derivatives regulations went into effect on Oct. 17, 2019, paving the way for what's been dubbed the Cannabis 2.0 market. As expected, Canopy Growth moved quickly to take the necessary steps to launch cannabis beverages. The company announced in December that its first beverage brands would hit the market in early January.

That was then. Canopy stated last week that it won't introduce new cannabis-infused beverages as quickly as it anticipated. But does the company's Cannabis 2.0 delay really matter?

Bottle containing a liquid beverage with a multicolored straw with a cannabis leaf sticking out of the end of the straw.

Image source: Getty Images.

Unfinished business

Until just a few days ago, it seemed that Canopy Growth was on track to introduce multiple new cannabis beverage brands in Canada. The company announced that it had received a license for its 150,000-square-foot beverage facility in Smith Falls, Ontario, on Nov. 25, 2019. Canopy said that the facility was operational and would immediately begin producing cannabis-infused beverages.

Just two days later, Canopy Growth provided some details on an array of new beverages that it planned to launch. The company said that it would market three flavors of Tweed RTD (ready to drink) premixed canned beverages, two flavors of canned cannabis-infused beverages with its partner Houseplant, four kinds of seltzer-like sparkling water beverages, a more potent high-THC-content carbonated beverage, and a line of cannabis beverage mixers.

On Dec. 6, Canopy gave time frames for when the new products would hit shelves in Canada. The first products were expected to launch in early January 2020, with other brands coming hot on their heels in the subsequent weeks of January and into February.

However, the company ran into a snag along the way. Canopy announced last week that "the scaling process is not complete" and that it would delay the rollouts of new cannabis-infused beverages while its team "work[s] through the final details."

Assessing the impact

The delay is certainly embarrassing for Canopy Growth after the company's repeated announcements related to the impending launch of the long-awaited cannabis beverages. But just how badly does this hurt Canopy? The bottom line: not much.

Canopy's share price fell a little immediately after the news hit about the pushback of the timeline for introducing cannabis beverages. But the stock quickly bounced back.

In its press release last week, Canopy said that it "does not believe this delay will have a material impact on its FY20 revenue." That statement could be viewed in two potential ways, though. Optimists likely expect that Canopy will be able to launch the new beverage products quickly enough that the financial impact is minimal. Pessimists, on the other hand, could speculate that the company didn't expect much in terms of sales in the current fiscal year, which ends on March 31, 2020.

There's also another reason for investors to not be overly concerned about the slipping timeline. Canopy Growth now has a new CEO in place. Former Constellation Brands CFO David Klein took the helm at Canopy last week. Whatever the mistakes of the past, investors appear to be hopeful that Klein will implement tighter fiscal and operating discipline at the company.

Two unanswered questions

However, two big questions related to Canopy Growth's cannabis beverages remain unanswered. First, the company didn't provide a date for when it now expects to launch the new products. All Canopy said was that it intends to provide an update with its fiscal year 2020 third-quarter results, which are currently scheduled to be reported on Feb. 14, 2020.

An even more pressing question, though, is how successful cannabis beverages will actually be in the marketplace. Some in the industry are skeptical that consumers will be receptive to cannabis-infused beverages. Canopy Growth, though, thinks that the products "have disruptive power" and could attract new customers over time to try cannabis products. Thanks to Canopy's delay, it will take longer to find out which view is more on target.

In the meantime, there are reasons to believe that 2020 will be a better year for marijuana stocks like Canopy Growth. The Cannabis 2.0 market is just beginning to shift into gear. More retail cannabis stores are being opened in Ontario and elsewhere. Canopy and others with a presence in the U.S. CBD market could potentially benefit if the U.S. Congress passes recently introduced legislation that would allow CBD to be legally used in foods. Canopy's cannabis beverages pushback shouldn't outweigh all of these positives.

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