When I last wrote about Canopy Growth (NYSE:CGC) in mid-June, the Canadian cannabis company had just announced a loss of 1.3 billion Canadian dollars ($952.1 million). As a result, chief executive officer David Klein introduced a strategy reset that would create a renewed focus. No longer would it be all things to all people. I thought this would be good for CGC stock.
In the three months since my June article, CGC stock has lost almost 14% through Sept. 28.
Patient investors needn’t worry. Here’s why.
Until a few days ago, it had traded in a tight range between $16 and $18. Then Acreage Holdings (OTCMKTS:ACRGF) announced its amended arrangement for Canopy to purchase the company once the U.S. federal government legalizes cannabis.
Essentially, it allows Canopy to buy all of the newly created Class E subordinate voting shares at a fixed rate of 0.3048 shares of CGC for each Class E share. Also, Class D subordinate voting shares and Class F multiple voting shares were created. Canopy has an option to buy the Class D shares at a floating value at the time of purchase. The Class F shares are fixed at 0.3048.
It’s a lot to say the potential number of shares outstanding in the future will be considerably higher, resulting in potential dilution for existing investors.
The Benefits of the Acreage Deal
Ultimately, though, the acquisition will be a crucial driver of Canopy’s global growth.
“We are encouraged by Acreage’s recent actions to improve the focus and financial performance of its business and begin building our brands in the U.S., through the introduction of the Tweed brand in several U.S. states,” Klein said on Sept. 22.
“The amended arrangement provides Canopy the most efficient entryway into the U.S., once federally permissible, and we believe will continue to benefit shareholders of both companies over the long-term.”
I completely agree.
In October 2019, I suggested that former CEO and co-founder Bruce Linton’s legacy could be the Acreage deal. Of course, that’s if cannabis is legalized at the federal level. I believe it will be, but the U.S. is such a mess at the moment it’s anybody’s guess when this will happen.
What’s This Got to Do With Martha Stewart?
InvestorPlace’s David Moadel recently discussed the mainstreaming of cannabis and why investors shouldn’t give up on Canopy’s stock.
“Famously squeaky-clean lifestyle guru Martha Stewart, of all people, has just launched a line of wellness supplements infused with cannabidiol or CBD. In case you weren’t already aware, CBD is derived from the cannabis sativa plant.
“If you’re fairly young, then you might only know Stewart as a woman who went to jail for some financial funny business. But I’m old enough to remember when Stewart was the epitome of domestic living. For years, she was a symbol of mainstream America,” Moadel wrote on Sept. 22.
“Now, Stewart and Marquee Brands are partnering with Canopy Growth to dose America with CBD-enhanced gummies, oil drops and soft gels.”
I can do one better than my colleague.
This weekend I was home visiting my wife’s family. My wife’s uncle is in his 80s and has major sight issues. He enjoys listening to classical music on Sundays. To enhance the listening experience, he takes a couple of drops of cannabis oil and swears it makes a world of difference.
So, there I was on the Saturday of my visit to the local government cannabis retail store, watching as my wife’s uncle asked the employee all kinds of questions. We left with several items that should last him until spring.
My colleague is 100% on the money when he argues that cannabis continues to see increased usage by mainstream consumers. I’ve seen it with my own eyes. I’ve been searching for edibles that I can enjoy on a Friday night but being the research type, I’m still in the information-gathering stage.
But I’ll get there.
Martha Stewart’s participation in the growing health and wellness segment of the cannabis industry is a reminder that Canopy Growth remains a leading player and shouldn’t be counted out just yet.
Down 14% since I last wrote about CGC stock, it’s an even better buy for patient investors.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.