Canopy Growth Corp needs to show investors real fundamentals instead of fluff, this investor says

Canopy Growth Corp needs to show investors fundamentals, not fluff, says one investor.

It’s been a tumultuous month of July in the cannabis space, what with the firing of face-of-the-industry Bruce Linton from Canopy Growth Corp. (Canopy Growth Corp. Stock Quote, Chart TSX:WEED) and the ongoing hide-the-pot scandal at CannTrust Holdings.

And while there may yet be wins available for the savvy investor, the sector is still too new to be taking your hard-earned dollars, says Chris Blumas of GlobeInvest Capital Management, who says that even an industry leader like Canopy should be avoided.

“This is a really tough sector because it’s so unproven,” said Blumas, portfolio manager at GlobeInvest to BNN Bloomberg on Thursday. “The economics of the business haven’t been figured out yet. Revenue growth has been good but profit growth has been weak.”

“Canopy is likely going to be one of the winners [but] when you’re producing a commodity there’s going to be a lot of competition — and from around the world down the road — [so] what really is your competitive advantage?” he said.

Canopy’s board of directors announced earlier this month that co-founder and co-CEO Linton had resigned, with co-CEO Mark Zekulin taking the helm while the company looks for a new head.

The change came weeks after Canopy reported its fourth quarter financials which showed large losses along with revenues in decline, with the speculation being that Linton’s ouster was forced by stakeholder Constellation Brands, which had upped its investment in the company last year to the tune of $4.5 billion. Canopy’s Q4 featured $94.1 million in revenue, with single-digit declines across recreational, medical and international sales, and a $97.7-million EBITDA loss.

Blumas says Constellation is likely growing impatient with Canopy’s money-leaking ways.

“I think that in terms of the Constellation influence, I think it’s a good thing,” Blumas said. “In terms of them upping their stake, I don’t know. I would guess that from their perspective this hasn’t met their investment hurdles yet, so I think it would be unlikely that they’d put more capital in. But I would think that they’re going to try to exert a lot more influence on Canopy to try and turn the corner. They need to start showing profitability and they need to compete on traditional business metrics.”

“This business has been driven by square footage growth and a lot of measures that don’t make a tonne of sense for fundamental investors. I think that that will likely change over time, but I would avoid it. I would wait for things to settle out a little bit more,” he says.

Canopy Growth is down 35 per cent from a recent high of $70.98 set in late April but the stock remains up 25.8 per cent year-to-date.

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File under: Canopy Growth Corp Fundamentals