The Coronavirus Is the Latest Obstacle for CGC Stock

CGC needs sustainable revenue to convince investors it is still a leader in the cannabis space

As if Canopy Growth (NYSE:CGC) needed another obstacle to overcome, here comes the coronavirus. After a choppy 2019 that saw the industry waiting for the retail market to open in Canada, this is the last thing CGC stock needed. Now, even people that want to buy cannabis legally are going to have to bear another inconvenience.

The Coronavirus Is the Latest Obstacle for CGC Stock
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On Mar. 17, Canopy Growth closed all of its corporate-owned Tokyo Smoke and Tweed stores. In a press release announcing the move, CEO David Klein said, “We have a responsibility to our employees, their families, and our communities to do our part to ‘flatten the curve’ by limiting social interactions. For us, that means shifting our focus from retail to e-commerce.”

Despite the shutdown, registered patients can still purchase cannabis for medical use through Spectrum Therapeutics. Adult-use customers can use online portals. However, that only applies to customers in the provinces of Manitoba and Saskatchewan.

Although the company says it is seeing above-average volume in the days leading up to the announcement, the company will have a difficult time repeating its revenue gains of 2019.

Profit Remains Elusive

Canopy reported negative earnings per share of $1.59 in 2019. With revenue certainly looking to take a hit in 2020, the company has no path to profitability. And with investors wrestling with a market that is down over 30% from its record highs, there is little appetite for speculation.

Canopy faces a critical supply and demand imbalance largely due to a black market that remains robust. And so far, Cannabis 2.0, which allows for the sale of derivative products has not seemed to help the situation much.

To be fair, it has hardly had time to get off the ground. But the company does not need an interruption to sales when the retail market is gaining acceptance but is not at the level of social acceptance as alcohol or cigarettes.

Has the Constellation Gravy Train Dried Up?

One of the catalysts for CGC has been its partnership with Constellation Brands (NYSE:STZ). However, it wasn’t much of a catalyst when Canopy itself is not profitable. The reality is that the narrative was always a little like saying the investment from Constellation was a firewall that made CGC stock “less bad.”

However, that infusion of cash is worth less and less as Canopy’s stock price continues to fall. And Constellation is having troubles of its own. While there’s no evidence that alcohol sales are declining, the manufacturer of the so unfortunately named Corona beer is seeing its own stock down over 40% as of this writing.

InvestorPlace’s Dana Blankenhorn presents a scenario in which Canopy is actually the healthier of the two companies. And that is a fact that Constellation may use to its advantage. And that, writes our own Wayne Duggan, may have been Constellation’s plan for Canopy all along. This presents an interesting scenario in which Constellation may become one of the more interesting ways to invest in the cannabis space.

What’s Next for CGC Stock?

I’ve long felt that the long-term bull case for cannabis will come from medicinal marijuana. Cannabis may turn out to be a solution for the global opioid crisis. But that is a long and winding road filled with stringent regulatory approvals. And it should be.

But that means, in the near term, companies like Canopy Growth need to see sales of its recreational product. And the coronavirus is going to make it challenging for the company to achieve that in 2020 and potentially beyond.

Investors have bigger problems to be concerned with right now. Taking a flier on CGC stock should not be one of them.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/cgc-stock-faces-new-revenue-problem/.

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