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What's Next for Canopy Growth After Its Dismal Q4 Results?

By Keith Speights - Jun 23, 2021 at 7:04AM

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The big wild card is what happens in the U.S.

Canopy Growth (CGC -6.57%) missed analysts' estimates on both the top and bottom lines with its fourth-quarter results reported earlier this month. In this Motley Fool Live video recorded on June 11, healthcare and cannabis bureau editor and analyst Olivia Zitkus and Motley Fool contributor Keith Speights discuss what's next for Canopy Growth after its dismal Q4 results.

Olivia Zitkus: Let's talk about another big hitter in the Canadian space before I move to some U.S. stocks. I want to talk about Canopy Growth. They had a pretty disappointing, that might be understating it [laughs], they had a pretty disappointing Q4 earnings report on June 1 or so most think.

Curious as to whether you have any thoughts on Canopy Growth, they've made lots of promises to finally reach positive earnings, non-GAAP style, and they can't even do that. We're not quite there yet. How did investors react? How did you react? Do you have thoughts on how they're dealing with their wholesale problems right now? [laughs]

Keith Speights: Yeah. Canopy Growth, the proof is in the pudding. I do think Canopy has a pretty good management team. Their CEO came over from Constellation Brands (STZ 0.51%), which, of course, is the major shareholder and big partner with Canopy.

I'm going to give them the benefit of the doubt that they are on that path to get to positive adjusted EBITDA, not true profitability, but at least it's a move in the right direction. They're saying they're going to be able to do it by the end of fiscal '22, and I believe that, I can't remember when their fiscal year ends, but I think that will be sometime within the next year.

Let's assume that they do. If they do, that's a great step, it's the beginning step, they still have to get to positive cash flow, get to a positive GAAP bottom line and Constellation Brands is going to be pushing for Canopy Growth to do that.

Now, the good thing about Canopy Growth is back to what we've already been talking about, Olivia. Canopy Growth is in an excellent position to jump into the U.S. market if the door opens. They have the option to buy Acreage Holdings, they have an option to buy a minority stake in TerrAscend, I think it is.

Of course, they have that relationship with Constellation Brands, which is just a huge winner in the premium beer market in the U.S. I think if there's any Canadian company that's in a strong position to capitalize on the opportunity, should it arise, if they can jump into the U.S. cannabis market, Canopy Growth is it.

Zitkus: Totally. I know we've all been hanging on the edge waiting to see what happens with the Acreage Holdings, the potential for that acquisition, and they've been busy.

They've got plans to acquire, I think it's Supreme Cannabis by the end of this month. I think that could happen any day, and that company has some potential, perhaps, maybe slightly better margins with their premium products, feeling a little, maybe slightly less of that pricing pressure than other players. But it might be too small to make a big difference at this point.

Speights: Yeah. I don't think the Supreme Cannabis deal moves the needle much for Canopy Growth at all. It's not a super costly deal for the company. Like you said, it can improve the margin somewhat, but not a big difference maker. The main thing to watch is what happens in the U.S.

Keith Speights has no position in any of the stocks mentioned. Olivia Zitkus has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Brands. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$2.70 (-6.57%) $0.19
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$244.36 (0.51%) $1.24
The Supreme Cannabis Company, Inc. Stock Quote
The Supreme Cannabis Company, Inc.
Acreage Holdings, Inc. Stock Quote
Acreage Holdings, Inc.
TerrAscend Corp. Stock Quote
TerrAscend Corp.
$2.38 (1.71%) $0.04

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