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Canopy Growth: Constellation’s Presence Can’t Be Ignored!

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Canopy Growth (CGC) (WEED) is a well-known cannabis player. Beer maker Constellation Brands (STZ) has a huge investment in the company, which caught investors’ attention. On Thursday, Canopy Growth announced that Constellation’s CFO David Klein will be the new chairman of its board effective immediately. Currently, Constellation Brands has the ability to make all of the significant decisions regarding Canopy Growth.

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Canopy Growth’s new board chairman

Constellation Brands’ executive vice president and CFO will be the chairman of Canopy Growth’s board. Canopy Growth’s CEO, Mark Zekulin, said, “David’s leadership has been extremely valuable to our Board at this pivotal moment in Canopy Growth’s history, and I am confident that he will continue to add value in his new capacity as Board Chair in the years ahead.” The company’s management said that Klein specializes in corporate strategy. He has experience in investor relations, finance and accounting, mergers and acquisitions, and information technology. The company also said that John Bell, who served as interim chair over the past few months, will still be the director of the board.

Klein’s appointment shows the hold that Constellation Brands has on Canopy Growth. Constellation’s growing presence is obvious. Earlier, we saw how Canopy Growth’s ex-CEO and founder Bruce Linton said that his termination was Constellation’s decision. According to a CNBC article in July, Cowen analyst Vivien Azer said, “The magnitude of losses for [Canopy] has expanded far more than we had expected, and while we commend Linton for his vision in establishing the world’s leading cannabis company, we believe new leadership will be a welcome change. About eight months and two days later, I think the board had decided they wanted a different chair and a different co-CEO.”

Constellation Brands has a 35% stake in Canopy Growth, which makes it the largest shareholder. The company is responsible for most of Canopy Growth’s key decisions.

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Constellation Brands’ hold on Canopy Growth

Recently, Constellation Brands’ reported its earnings for the second quarter of 2020. The company incurred a loss of $484.4 million from its investment in Canopy Growth. Despite the losses, Constellation Brands is optimistic about Canopy Growth’s future and its expansion into Cannabis 2.0. Read Canopy Growth: Good Investment for Constellation Brands? to learn more.

Canopy Growth also reported disastrous results for the first quarter of 2020, which concerned investors. As a result, Constellation Brands booked losses in the first quarter. To expand in the cannabis beverage market, Canopy Growth acquired BioSteel Sports Nutrition. Along with Constellation Brands, the acquisition will allow the company to expand its product and consumer base. Read Why Canopy Growth Acquired BioSteel Sports Nutrition to learn more.

Canopy Growth will report its results for the second quarter of fiscal 2020 in November. Analysts expect the revenues to be around 114.8 million Canadian dollars for the second quarter of 2020. The company c report a loss of 0.30 Canadian dollars per share. Canopy Growth could also report a negative EBITDA of 115.3 million Canadian dollars.

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Peer’s upcoming earnings

Meanwhile, Aphria (APHA) will report its earnings for the first quarter of fiscal 2020 on October 15. The consensus revenue estimate is 134.2 million Canadian dollars for the first quarter of 2020 compared to 13.2 million Canadian dollars in the first quarter of 2019. The company could report a loss of 0.01 Canadian dollars per share in the first quarter. Read Aphria: What to Expect from Its Q1 2020 Earnings to learn more. Aphria is preparing for Cannabis 2.0. Read Cannabis 2.0: Aphria Gets Ready for Edibles Market to learn more.

Hexo (HEXO) will report its results for the fourth quarter of 2019 on October 24. The company might report revenues of 25.7 million Canadian dollars for the fourth quarter. Hexo could also report a loss of 0.06 Canadian dollars per share in the fourth quarter. Analysts expect a negative EBITDA of 9.3 million Canadian dollars for the fourth quarter. However, Hexo’s management expects its net revenues to be approximately $14.5 million–$16.5 million for the quarter. The company expects its net revenues for fiscal 2019 to be around $46.5 million–$48.5 million.

We think that Constellation Brands is worried about answering to its own shareholders. As a result, the company is making strategic changes to Canopy’s management to drive growth.

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Cannabis sector 

The cannabis sector took a hit on Thursday when Hexo stock crashed. Hexo withdrew its fiscal 2020 outlook and announced lower preliminary results for the fourth quarter. The company’s CFO, Michael Monahan, also resigned this week. Meanwhile, Bank of America Merrill Lynch to double-downgrade the stock. Hexo stock closed with a loss of 22% on Thursday. To learn more, read Hexo Withdraws 2020 Outlook, Stock Falls 24%.

Canopy Growth fell 10.5% on Thursday. Aurora Cannabis (ACB), Aphria (APHA), Cronos Group (CRON), and Tilray (TLRY) also fell 9.4%, 14.2%, 7.2%, and 13.4%. In addition, Tilray is being investigated for potential securities violations and breach of fiduciary duty claims.

The Horizons Marijuana Life Sciences ETF (HMMJ) also fell 8.2% on Thursday. HMMJ tracks the North American cannabis industry. Cannabis companies are preparing for Canada’s next phase of legalization. However, they also face challenges in the industry. Hexo cited various reasons like pricing pressure and delayed regulatory approval for withdrawing its 2020 outlook. Marijuana legalization has taken a back seat for now. Besides Wisconsin, Pennsylvania, and South Dakota, we haven’t heard any other states stepping up. There hasn’t been much support from presidential candidates either.

With Constellation Brands’ substantial holding in Canopy Growth, can shareholders expect better results in the upcoming quarter? Notably, Canopy Growth plans to drive growth and profitability from its edibles expansion after Cannabis 2.0 this month.

For more analysts’ outlook on cannabis stocks, visit our Word on the Street page. For more cannabis-related news and updates, visit 420 Investor Daily.

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