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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Canopy Growth (CGC): What Happened at Barclays Event, and What’s Next

With the founding CEO at Canopy Growth (CGC) gone for two months now, the company had an opportunity to reset expectations at a Barclays conference. Unfortunately, the cannabis company continues to set aggressive growth goals, but rather modest profit goals. Canopy still needs a new CEO to rationalize the business and make the stock attractive to investors.

Barclays Conference

The company attended the Barclays 2019 Global Consumer Staples conference on September 4. CFO Mike Lee presented for Canopy Growth providing an interesting perspective from the most senior executive expected to remain at the corporation after this executive shuffle.

Canopy Growth held an earnings call for the June quarter report on August 15, but the discussion was as much about the quarterly results as the future business prospects. With now two months passed since the departure of founding CEO Bruce Linton, the hope was for the CFO to present a restructuring where the cannabis giant doesn’t chase every cannabis market in the world.

Instead, the CFO doubled down on Acreage Holdings (ACRGF) and CBD in the U.S. in addition to global markets in Europe and Latin America. The end result is that the company maintains FQ4’20 (March quarter) targets of C$250 million in revenues and 40% gross margins.

Canopy Growth expects to reach the revenue goal via store growth in Canada and entering new markets such as CBD in the U.S.

So Many Contingencies

The biggest problem with the plan is a stock value still up at $8.5 billion and the need to execute on both Cannabis 2.0 in Canada and CBD in the U.S. As the company is attempting to push margins back to only 40%, Canopy Growth has to invest aggressively in these new operations.

Both of the markets have the potential for being successful, but neither market necessarily benefits the other while the competition is highly focused on their particular markets. By the time Canopy Growth enters the CBD market in the U.S. towards the start of 2020, every major U.S. MSO along with several pure plays will already have products on the market.

The CFO provided no improved timelines for profitability. The goal remains for the Canadian operations to reach EBITDA profitable in FY21 and company wide in FY22.

The goal doesn’t appear lofty when top competitor Aurora Cannabis (ACB) is already expected to be EBITDA positive now based on gross margins reaching 70%. What is needed is a reduction in the bloated corporate structure where the company spent nearly C$125 million on operating expenses. The amount is far too large to support an organization with a goal for 40% gross margins suggesting Canopy Growth is chasing markets with limited near-term profitability prospects in order to just become the biggest global cannabis company, not the best.


The key investor takeaway is that Canopy Growth continues to chase global markets without the massive margin profiles worthy of such moves. For this reason, the large cannabis company actually has modest revenue targets approaching only a $750 million run rate by the end of March with a market cap still up at $8.5 billion.

The picture at Canopy Growth just isn’t improving until the company hires a new CEO willing and able to take tough decisions on the future business model.

Unsurprisingly, investor sentiment remains negative, with individual portfolios in the TipRanks database showing a net pullback from CGC.

Disclosure: No position.


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