With Canada’s pot companies still licking their wounds after a sector-wide meltdown, it’s unclear where investors can find real value among the ruins. And while many see Canopy Growth Corp (Canopy Growth Corp Stock Quote, Chart, News TSX:WEED) as a sure bet to rise from the ashes, according to Christine Poole of GloveInvest Capital, it remains to be seen whether it will get a long enough leash from major investor Constellation Brands to really establish itself as a leader on the international stage.
The drums started beating this past summer for Canopy with the ouster of co-CEO Bruce Linton, ostensibly at the behest of Constellation Brands whose multi-billion dollar investment in cannabis via Canopy had yet to show signs of paying off.
Canopy’s revenue was not growing at the clip expected but, worst of all, profits still seemed like a faraway dream as the company —like every other operation in the space— kept the pedal down on its expansion plans and aimed at building a vertically-integrated cannabis empire.
Then the news broke this week that Constellation’s own CFO, David Klein, was taking over the helm at Canopy, thus giving more indication that the pot company’s way forward would receive direction from Constellation.
Poole says the message seems clear.
“As we know, Constellation Brands owns a big chunk of Canopy and [Constellation’s] CFO is going to become Canopy’s CEO, so I guess that implies that they want to exercise more control over the company and maybe implement more capital discipline,” said Poole, CEO and managing director at GlobeInvest, in conversation with BNN Bloomberg on Friday.
“We’ll see how that evolves, because we know that when you’re in a new, emerging industry, sometimes you need to spend, which is what these companies have been doing,” added Poole. “They’re spending and growing and buying and taking advantage of capital markets when they can to issue equity. That may change with Constellation getting more involved.”
Canopy has actually had a good month of December so far, with the stock now up 11 per cent and closing out the second week at $27.28 per share. That’s still a long way from the $70 per share that WEED hit back in April, however.
Volatility will continue to be the name of the game, said Poole, who sees no real investment opportunities in the space while the parameters are still to be decided upon.
“We don’t own any investments in the cannabis space,” Poole said. “The industry is still evolving and there’s a lot of change going on. The rules are changing.”
“We just saw the Ontario government announce some changes which are going to be positive, I think, for the sector, but people were hoping that it would actually be more positive than what was announced in terms of opening up the retail stores,” she said.
“Unfortunately, the black market is still doing quite well because of pricing and various issues,” Poole concluded. “So, I’m not looking at any cannabis names right now. I think that it’s very hard to model out what these companies are going to look like.”