Canopy Growth Stock Needs Outside Help to Keep Growing

Canopy Growth's pending acquisition of Acreage Holdings shows it is ready for the U.S. to legalize marijuana

Canopy Growth (NYSE:CGC) likes to be called the most corporate of the big marijuana players. Its market cap is a robust $14 billion-plus, and it signed a $4 billion tie-up last year with Constellation Brands (NYSE:STZ), the U.S.-based wine and beer company.

The stock market has blessed that deal. Constellation stock has held strong even as it has sold brands, the shares rising over 20% in April alone.

So why hasn’t Canopy reported on its March quarter yet?

The reason may be the most bullish call of all.

Canopy’s American Plan

Canopy should report earnings on June 26, when it’s expecting a loss on $72 million in sales, so it can complete the acquisition of Acreage Holdings (OTCMKTS:ACRGF), a New York company that is awaiting the “big bang” of U.S. pot legalization.

Canopy values Acreage at about $3.4 billion, but can’t just buy it because its product is illegal in the U.S. The plan is to give Acreage shareholders $300 million plus the right to buy it later for stock once legalization goes through.

After a concerted campaign by Canopy, Acreage has signaled that 91% of its shares support the deal.  A shareholders meeting to approve it is now scheduled for June 19, which would clear the decks for the numbers to come out.

Acreage reported revenues of just $12.9 million for its first quarter. It was founded in 2014 as High Street Capital Partners and has been grabbing all the legal cultivation rights and U.S. sales rights it can get since Colorado made pot legal in 2012. It may be best known for having recruited former House speaker John Boehner to its Board of Advisors. Martha Stewart has also invested in Canopy stock, adding her name to the company’s star power.

The idea is that, as each state moves toward making recreational marijuana legal, Acreage is ready, and the American market is wide open for Canopy.

Canopy Reality

Deals like the one between Canopy and Acreage have, if anything, slowed the momentum of legalization.

Some legislators don’t like the idea of Wall Street sharpies making billions while black street dealers languish in prison. Minority legislators are demanding “social equity.” While legalization is a “top 10” legislative goal for New York Governor Andrew Cuomo, who has amended his own bill to expunge old pot convictions, it faces a June 19 deadline with no certainty of passage. New Jersey ended its legislative session without passing a marijuana bill.

All this now matters to Canopy Growth shareholders.  The pace of U.S. legalization will determine the pace at which it can acquire Acreage and grow its operations.

Canopy itself continues to ramp up its operations. It has launched plans to produce industrial hemp, bought a company that makes skin creams with cannabis-derived CBD in it, and created an investment arm. It is bringing in a new chief financial officer from Constellation.

But it’s all going nowhere fast unless American governments bless it. Currently 10 states allow recreational pot, and 33 have some legal type of medical marijuana law. But federal law still classifies marijuana alongside heroin as a schedule one drug — the classification for drugs with no perceived medical use and a high potential for abuse.

The Bottom Line

New investors in Canopy Growth are betting that the U.S. wall against marijuana falls in 2021, as legalization continues state-by-state. Opponents continue to call marijuana addictive, unhealthy for mind and body, a destroyer of lives and a crime risk.

Canopy, by putting business suits and plans behind the industry, may have gained some currency on Wall Street. But until it breaks through in Washington D.C., financial gains will be limited.

Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2019/06/canopy-growth-stock-needs-outside-help-to-keep-growing/.

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