Canopy Growth on mergers and acquisitions
During its earnings call on June 21, Canopy Growth (WEED) (CGC) discussed its ongoing merger and acquisition activities. The company’s massive backing of 5 billion Canadian dollars from Constellation Brands (STZ) has provided it with the much-needed resources to build out its growth ambition. The company’s acting CFO, Mike Lee, said that acquisitions are a “top investment priority” for the company and even called the Constellation investment a “war chest” to help the company meet its acquisition needs.
In the fourth quarter of fiscal 2019, which ended on March 31, Canopy Growth’s balance sheet had 2.5 billion Canadian dollars in cash and cash equivalents and another 2 billion Canadian dollars in marketable securities. In comparison, Cronos Group (CRON) had cash and cash equivalents of 2.5 billion Canadian dollars on March 31. On the other hand, Aurora Cannabis (ACB) had cash and a short-term investment balance of just ~535 million Canadian dollars on March 31.
While these investments are necessary for growth, we must also be careful when looking at a company’s current financial performance, which doesn’t reflect the full scale of its prior investments. For example, in fiscal 2019, the company’s subsidiaries remained partially unutilized. These subsidiaries included greenhouses at Aldergrove and Mirabel as well as investments in beverage products for which the company believes the market will come online in 2019.
As a result of these acquisitions taking time to come to fruition, Canopy Growth’s acting CFO said that the company is expected to continue reporting a loss in the next quarter’s earnings release. In addition, the company will also be recording charges related to changes in earlier issued warrants to Constellation Brands, which will further negatively affect its fiscal 2020 first-quarter earnings.