Cannabis stocks continue to struggle badly, with most of the big names like Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB) about to touch 52-week lows. Canopy Growth (NYSE:CGC) should interest investors in this space most: Constellation Brands (NYSE:STZ) stock trades at yearly highs despite CGC stock falling.

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As another author noted, Constellation has $4 billion tied up in Canopy Growth stock but STZ stock is in an uptrend. Should investors change their mind on holding Canopy Growth stock?

Vaping Ban in the U.S.

The CDC’s warning about vaping casts doubts that Canopy’s vaping launch in Canada will succeed, at least initially. The CDC warned people not to use vaping products, as they investigate the 450 people affected.

Multiple people reportedly have died from vaping. So, the CDC advised people to avoid using e-cigarettes and vape devices especially modified devices or homebrew material.

Whether aftermarket devices and mixes are to blame or not, the timing of the warning is bad news for Canopy Growth.

Canopy is readying the launch of vape products in Canada. While the vaping “epidemic” is forcing the U.S. regulators to consider banning flavored e-cigarette sales, Canopy investors will need to rely on Canada’s established regulations.

Health Canada legalized vape sales last year in May and has other rules in place. For example, vaping product advertisements and sales are subjected to four regulations found here.

Canopy may benefit from an initial surge in vape products in Canada when it launches, despite its safety concerns in the U.S.

If customers consuming Canopy-made vape products experience no health complications over the course of the next few months, the U.S. may allow Canopy to sell its goods, too.

De-Levering Balance Sheet

Canopy had no problems paying for its expansion plans through the Constellation Brands investment of $4 billion but its assets may hold it back.

It has around $1.4 billion in PP&E on its balance sheet. Instead of spinning off those assets as a REIT, it could issue private placement debt or offer a sale-leaseback.

This would further boost its liquidity, giving the company more flexibility in buying raw materials as needed.

In the last quarter, Canopy spent around $800 million in acquisitions. It also spent a few hundred million in the period to finish up its bottling facility in Canada.

Now that they are complete, the company may start manufacturing the product in Canada. Still, it will need to add additional capacity to meet demand, investing in manufacturing buildings in the U.S.

Partnerships and CGC Stock

Canopy has many clinical research activities but does not need to fund all of them on its own. It may partner with others willing to share the funding commitments.

This lowers its risks by spreading the responsibilities among many partners. Canopy already has partnerships with firms in Latin America.

For example, it may partner with local firms in the region. This lets Canopy leverage the knowledge of the local people and system, leaving Canopy to focus on the cannabis aspect of the studies.

Fair Value on CGC Stock

Canopy has a plan in reaching profitability in Canada. Investors may reasonably expect it getting there by the end of the fiscal year 2021. To get there, it needs new store openings and regulatory approval for recreational cannabis 2.0.

By fiscal 2022, delivering positive adjusted EBITDA is possible. With those assumptions, investors may build a five-year DCF Growth Exit model to estimate a fair value for CGC stock.

Assume revenue doubling in the next two fiscal years and EBITDA positive by 2022:

Source: finbox.io

At a discount rate of between 12%-13%, Canopy Growth stock has a fair value of $30, 18% above its recent price of $25.60.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.