Canopy Growth Corp. (CGC), the largest cannabis company by market value at around $11 billion, has grown dramatically via acquisition and is seen as well positioned to exploit a global market that could grow to $94 billion annually by some estimates. But despite rising about 16% year-to-date, the Canadian company's shares have plunged by around 45% off their one-year high, illustrating concerns about the company's execution, the ouster of co-CEO Bruce Linton this spring, and continuing losses.
What Investors Are Looking For
That's why cannabis investors will be closely watching Canopy Growth's earnings announcement for the quarter ending June, currently scheduled for August 14. Investors are likely to focus closely on Canopy Growth's progress in absorbing acquisitions and its plans for new ones. Most important, they are likely to want to know when the company, like so many fast-growth companies, will finally be able to post consistent profits. Investors also will assess whether the company can reach its goal of CA$1 billion in revenue for the year, which would amount to CA$250 million per quarter. That looks more difficult after a recent weak period for cannabis sales.
For the fiscal quarter ended in June, analysts expect Canopy to post a loss of $0.29 a share, per Nasdaq data. The Nasdaq consensus also sees losses in each of the next four quarters. In Canopy’s earlier fiscal quarter ending March, the stock fell sharply on when results were announced.
While Canopy Growth has posted big losses in the past, many investors have overlooked them. Cannabis firms have spent heavily in order to gain market share in the booming global industry. For example, Canopy has gone on a major acquisition spree, including buying up U.S. cannabis company Acreage Holdings for $3.4 billion in anticipation of federal legalization of cannabis in America.
A big challenge for investors and Canopy Growth is the hazy outlook for federal U.S. regulations for both the non-psychoactive cannabis compound called CBD, and also rules for THC, the cannabinoid known for making users “high.”
Currently, cannabis companies and investors are getting unclear signals from Washington. While hemp and its derivatives are currently legal, companies are still waiting on the FDA for guidelines for how to sell and market their products. CBD still cannot be sold over state lines, and companies cannot market their products as a health or dietary supplement, according to Business Insider. Also, it is still illegal for banks and financial institutions to work with cannabis companies. The sale of recreational cannabis is legal in many states but remains illegal on the federal level.
Canopy Growth has several advantages that will help it to overcome many of these challenges. The company benefits from its leadership position in the Canadian adult-use recreational cannabis market. And it has and will receive financial and logistical support from Constellation Brands Inc. (STZ), which invested $4 billion in the company for a 38% stake. Canopy Growth's bright longterm prospects may prompt investors to overlook projected losses in the coming quarters.