Is Canopy Growth still a leader?
Slow sales, a plunging share price and serious profitability concerns have all been dogging cannabis producer Canopy Growth Corp (Canopy Growth Corp News, Stock Quote, Chart TSX:WEED) lately, not to mention the loss of former CEO Bruce Linton, in some ways the face of the Canadian pot industry for the last few years.
But investors brave enough to enter the cannabis space still need to be thinking Canopy, argues portfolio manager James Telfser of Aventine Asset Management, who says that the company is big enough to weather the storm when it comes to the ups and downs in Canada’s freewheeling cannabis sector.
“It’s one of those interesting times when we feel like a lot of these companies are shaking out,” said Telfser to BNN Bloomberg Wednesday. “Thank goodness we haven’t shorted a lot of these names — even though every box was checked to short you just can’t fight that trend of new investors who want to own the space.”
“But if I was to look through all the names and say, what name is doing all the right things? Canopy Growth is up there,” he said. “They seem to be large enough now that they could probably stickhandle some things probably a little bit better than some of these companies that have only one facility or something to hang their hat on.”
Canopy’s share price is down about 35 per cent from a recent high set at the end of April. Last month, the company released quarterly financials that shocked investors with not only a drop in sales numbers across both its recreational and medical units but ballooning losses, registering a whopping $242.9 million in operating expenses for its fourth quarter. Top that off with the firing of Linton in early July, a move which effectively puts Canopy squarely in the hands of US alcohol company Constellation Brands, and you have a company that has lost investor confidence.
But Canopy’s woes are being shared sector-wide, with all the pot stocks losing ground over the past three months, a pullback from the inflated highs of earlier this year. The Horizons Marijuana Life Sciences ETF (TSX:HMMJ) which tracks the North American cannabis space has been in a free fall since mid-March, losing 31 per cent of its value over that period.
Telfser says the volatility is part and parcel of an industry which is having its share of growing pains, and with dozens of emerging companies at the table, picking the winners means betting on quality leadership.
“The key thing here is understanding the management team, looking at the board of directors, literally peeling things away and understanding all of the players that are involved there because that’s going to tell you a huge amount about where these companies are going to go,” Telfser said. “A lot of these companies are not going to be shareholder friendly, so you want to be careful of that.”