Tilray has badly underperformed Canopy Growth so far this year. While both stocks are down, Tilray has lost more than half of its market cap. That makes Canopy's year-to-date decline of around 20% look much less worrisome. But which of these marijuana stocks is the better pick looking ahead?
The case for Canopy Growth
Canopy Growth is arguably the company in the best position to be the biggest winner in the global cannabis industry. Why? Its relationship with Constellation Brands (STZ 1.23%). The giant adult beverage company first bought a stake in Canopy Growth in 2017 then followed up in 2018 with a massive $4 billion investment.
Probably the biggest advantage that Canopy Growth's partnership with Constellation gives it is cash. Canopy reported cash, cash equivalents, and marketable securities of nearly 2.3 billion in Canadian dollars as of the end of 2019. This cash stockpile is enormously important since the company isn't yet profitable.
Another plus from the relationship with Constellation is new Canopy Growth's new CEO. David Klein previously served as Constellation's CFO. He took the helm at Canopy earlier this year and stated that one of his top priorities was "to define a very visible path to profitability and positive cash flow." Klein has taken clear steps toward these goals, including restructuring Canopy's global operations.
The connection with Constellation should also help Canopy Growth as the cannabis derivatives market takes off in Canada. Canopy and Constellation worked together to develop cannabis-infused beverages. Canopy Growth has already launched its Tweed Houndstooth & Soda beverage and plans to launch other cannabis-infused beverages this year. Constellation Brands CEO Bill Newland even called these products "game-changers."
Constellation's cash also enabled Canopy Growth to set itself up to be a big winner in the U.S. market. Last year, Canopy inked a deal to acquire U.S.-based Acreage Holdings when marijuana becomes legal at the federal level in the United States. Although there's no guarantee this will happen anytime soon, the elections coming up in the U.S. in November could dramatically shift the landscape for federal marijuana legalization or at least federal recognition of individual states' cannabis laws.
The case for Tilray
Tilray doesn't have a major equity partner as Canopy Growth does. However, the company has lined up several key deals that could boost its long-term growth.
On the medical cannabis front, Tilray partnered with big drugmaker Novartis. The two companies originally co-marketed medical cannabis products only in Canada but later expanded their relationship to focus on the global medical cannabis market.
Like Canopy Growth, Tilray teamed up with a big adult beverage company, in this case, Anheuser-Busch InBev, to develop cannabis-infused beverages. Tilray and AB InBev established a joint venture, Fluent, which has debuted one brand already, a line of non-alcoholic, CBD-infused ready-to-brew teas and sparkling beverages.
Tilray also made a big acquisition of its own, buying hemp foods producer Manitoba Harvest in early 2019. This deal has catapulted Tilray into a leadership position in the hemp market with its products available in more than 17,000 retail locations across 20 countries.
The company has also transformed its executive team to reflect its consumer packaged goods (CPG) focus. While founder Brendan Kennedy remains Tilray's CEO, it has hired a former Revlon executive as COO, a former Molson Coors exec as CFO, and an industry veteran with experience at Mattel and General Mills to head up Manitoba Harvest.
Better marijuana stock
Canopy Growth and Tilray both face continued challenges from the impact of the COVID-19 outbreak and a limited retail infrastructure in Canada. Both companies are also unprofitable.
I think that Canopy Growth is in a better position to navigate these challenges. While Tilray has certainly put together some impressive partnerships, Canopy has something much more important right now -- cash. My view is that Canopy Growth will be able to not only survive the current difficulties but also thrive over the long run as the global cannabis market grows.