Canopy growth (CGC) is it a good investment?

Summary

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  • The Canadian marijuana stock, Canopy Growth (CGC) has been struggling in recent months to generate profits, just like Aurora Cannabis stock (ACB).
  • In its 2021 fiscal fourth quarter (ended March 31), revenue jumped 38% year over year to CA$148 million. For the full year, revenue came in at CA$547 million, up from CA$399 million in fiscal 2020.
  • Canopy Growth has the largest market cap of any other cannabis stock with a market value of about $7.3 billion.
  • Canopy Growth’s management stated that is on track to achieve positive earnings by the second half of fiscal year 2022.

 

The Canadian marijuana stock, Canopy Growth (CGC) has been struggling in recent months to generate profits, just like Aurora Cannabis stock (ACB). Despite the pandemic that didn’t help the companies generate positive earnings before interest, tax depreciation and amortization (EBITDA), there are few reasons including lower legal stores than expected, and regulatory delays.

Looking at both these companies today Canopy Growth reported earnings and seems to be in a better position than Aurora Cannabis. This is because Canopy is financially backed by a U.S. beverage giant named Constellation Brands. The beverage company has invested 245million Canadian dollars in 2017, the start of its partnership with Canopy. Today after almost 4 years, Constellation Brands holds a 38% stake in Canopy. Of course, this is a plus point when you are looking at the company but is this a good enough reason to trust the stock?

Only a month ago, the stock was traded at $22.88 however ever since then its declining and is currently traded at $19.20. Yesterday, 5th of August the stock increased 4.70%. Is this because of the launch of new products, Tweed Quickies and Ace Valley Pinners?

Canopy Growth recently commissioned a study by Dig Insights that found that traditional 0.5 gram joints are too big for many consumers to enjoy in one take and are very long to consume. Therefore, Canopy Growth came up with the two product lines. Tweed Quickies that have 0.35 gram and Ace Valley Pinners that have 0.3-gram offerings. Even though, the company developed new products the stock continued to decline.

Canopy Growth earnings

In its 2021 fiscal fourth quarter (ended March 31), revenue jumped 38% year over year to CA$148 million. For the full year, revenue came in at CA$547 million, up from CA$399 million in fiscal 2020. Canopy saw growth in almost all of its business segments for the full fiscal year 2021:

  • Canadian recreational sales were up 32% year over year to CA$230 million.
  • Medical cannabis and others (including CBD-related products — CBD, or cannabidiol, is a non-psychoactive component of marijuana) grew by 23% year over year to CA$149 million.
  • Other consumer products (which includes business from vaporizer maker Storz & Bickel, skincare brand This Works, and others) jumped 62% to CA$168 million from the year-ago period.

It is important to note, that Canopy did mange to reduce its EBITDA losses and grow its revenue.

About Canopy Growth

Canopy Growth has the largest market cap of any other cannabis stock with a market value of about $7.3 billion. Canopy Growth offers product varieties in high-quality dried flower, oil, softgel capsule, infused beverage, edible, and topical formats, as well as vaporizer devices. Its global medical brand, Spectrum Therapeutics, sells a range of full-spectrum products using its color-coded classification system. 

The company is looking into buying a U.S. cannabis operator Acreage Holdings to grow its U.S. CBD business.

It will report first quarter financial results today 6 of August 2021.

On the other hand, competitor Tilray (TLRY) posted adjusted EBITDA of $12.3 million, net cash from operating activities of $8.3 million, and positive free cash flow of $3.3 million in Q4 for the first time. Tilray has off and on been the subject of speculation by the players at Wall Street Bets.

Tilray offers a broad-based portfolio of brands and adult-use products through its wholly owned subsidiary, High Park Holdings Ltd. The Company also supplies high-quality medical cannabis products to tens of thousands of patients in 17 countries on five continents through its subsidiaries in Australia, Canada, Germany, Latin America and Portugal, and through agreements with established pharmaceutical distributors.  Analysts at Cantor Fitzgerald recently upgraded the stock after its merger with Aphria in May. Following the merger, the combined Tilray/Aphria has the largest global geographic footprint in the industry, low-cost production facilities, and a wealth of international growth opportunities. (OTC Stock review)

Bottom Line

Canopy Growth’s management stated that is on track to achieve positive earnings by the second half of fiscal year 2022.

This goal seems to be reasonable for the company. If it manages to d that while operating only in the Canadian market it can mean a potential huge step towards the U.S. market.

Looking at the price to sales ratio (P/S) the stock is trading at 17 times which is expensive compared to other companies that have higher revenue and a lower P/S of 6 to 9 times.

Disclaimer – I/we have no position in any stock mentioned. I wrote this article myself, and it expresses my personal opinions. I am not receiving any compensation for it, other than FDGT Academy. I do not have or had in the past any business relationship with any company that is mentioned in the above article.

Natalia C. - Junior Analyst at FDGT Academy

Natalia C. - Junior Analyst at FDGT Academy

I am a stock analyst/investor with prior experience and knowledge to BSc Accounting and Finance. After completing my degree and exposure to the accounting firms I decided that the direction I should choose is towards the Investment world. I completed my masters in Investment Management where it gave me solid fundamentals to build my career on. I have examined a lot of different aspects of investment, from REITS, derivatives, currencies, bonds, equity and hedge funds. I never stopped learning about the market which is why I can analyze and write articles for FDGT community always personally opinionated. My passion are green energy and electric vehicles stocks as a whole. I also had my share of analyzing the work form home stocks that are coming to take over in the upcoming years.

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