As its peers drop by the wayside, is Canopy Growth Corp (Canopy Growth Corp Stock Quote, Chart, News TSX:WEED) destined to be the winner in the game of weed stock Survivor?
Pot stocks across the board have been horrendous over the past half year, keeping investors at bay as they look for signs of promise and profits in the still-emerging sector.
The cannabis space should see a lot more consolidation going forward, meaning that only a few bonafide contenders will make the cut — and one of them could be Canopy Growth Corp, which according to portfolio manager Rick Stuchberry might be left when the dust settles.
“We’re not in the space, [but] if you look at the potential size of the market there are just too many players,” said Stuchberry of Wellington-Altus Private Wealth, speaking to BNN Bloomberg on Wednesday.
“It reminds you of the automotives in the early part of last century where everyone was making cars in their garage and then 20 years later there were three car manufacturers left. That’s what’s going to happen in this space,” he says.
“Maybe Canopy is a survivor. It might be one of the ones that makes it,” Stuchberry says.
A leader in the cannabis sector from practically the get-go, Canopy has had a tough time this year, with its share price shooting up over the first few months of 2019 to $70.00 by late April. Since then and like the sector as a whole, Canopy has fallen hard, dropping as low as $25.52 in Wednesday’s trading.
The stock’s losses can in part be blamed on a lack of investor confidence in cannabis, where a slower than expected roll-out across Canada and lower than expected demand for products have been paired with early signs that the dream of soaring earnings in an expanding market may not come to pass.
Canopy is no exception here. The company posted net revenue of $90.5 million in its latest reported quarter in mid-August, a huge increase from $25.9 million generated a year earlier when the medical cannabis market was the only game in town.
But the top line still came in below the consensus forecast for $103.4 million, while the quarter also featured a net loss of almost $1.3 billion, as operating expenses ballooned and the company dealt with a non-cash loss of $1.18 billion from warrants held by partner Constellation Brands.
All eyes will be on Canopy’s next quarterly report, due next Thursday, but in the meantime, the company has been making moves to shore up its position in the industry. Reports emerged last week that Canopy was aiming to open a retail outlet at One Bloor Street East in Toronto, one of the busiest, and priciest, addresses in the country. Outside of Canada, Canopy recently announced a couple of wins as it became the exclusive medical pot supplier to Luxembourg while in the UK Canopy received its first license for a medical cannabis storage and distribution facility.
But as the build-out continues both in Canada and globally, investors should tread cautiously, if at all, in the space, says Stuchberry.
“It’s a trading environment, it’s not an investing environment,” he says.