Canopy Growth (CGC) (WEED) has struggled this year. Despite all strategies, cannabis companies failed to hit revenue and profitability targets this year. Also, external factors were at play. However, CGC stock saw relief after the announcement of its new CEO. In December, CGC stock is up 11%. As the year draws to an end, let’s take a look at Canopy’s strategy for growth.
What happened in the first two quarters for Canopy Growth?
Canopy Growth struggled with profitability in the first two quarters of fiscal 2020. Additionally, due to lower store rollouts and rising black market sales, the company’s revenues are taking a hit. The company’s EBITDA loss increased sequentially. In the first quarter, it reported adjusted EBITDA of -92.0 million Canadian dollars. Conversely, it reported a loss of 155.7 million Canadian dollars for the second quarter.
Notably, this trend is why former CEO Bruce Linton suggested that the new CEO of Canopy Growth should focus on long-term growth. Canopy hired Constellation Brands’ (STZ) current CFO, David Klein, as its CEO effective January 14, 2020.
Canopy’s Cannabis 2.0 expansion plans
Canopy Growth takes pride in the variety of brands and products it offers. We discussed earlier how product differentiation provides an edge in the cannabis industry. Notably, Canopy’s core brands include Spectrum Therapeutics, TWD, Van der Pop, Tweed, Tokyo Smoke, DOJA, and This Works.
Plus, the company is launching its Cannabis 2.0 beverages and edibles products under the brands Bean and Bud, Deep Space, and Quatreau. To learn more about Canopy Growth’s brands, take a look at An Overview of Canopy Growth and Its Brands.
Recently, the company also provided an update of its upcoming Cannabis 2.0 portfolio of products. It plans to roll out chocolates, vape pens, vape cartridges, and beverages by the end of December 2019. The company has laid out a detailed plan on the types of beverages it intends to launch when the products are allowed to hit the stores.
Recently, it acquired BioSteel Nutrition Company to develop CBD-based nutritional beverages. To learn more about these products, please read A Look at Canopy Growth’s Cannabis 2.0 Portfolio.
What’s Canopy Growth’s strategy for growth?
Canopy Growth detailed its growth strategies in its management, discussion, and analysis for the second quarter. Currently, CGC’s focus is on:
- Completing its infrastructure buildout and focusing on its operating businesses in Canada and Europe.
- Investing strategically across new geographical locations.
Secondly, the company spends a substantial amount on research and product innovation. Canopy Growth manufactures new cannabis-based medicines by conducting clinical trials. Finally, the company’s investment strategies include targeting businesses and production facilities, allowing it to develop higher-margin products for the second phase in Canada.
Canopy’s expansion in the US market
Canopy Growth entered into an agreement with US cannabis company Acreage Holdings. CGC believes this acquisition could strengthen its position in the US market. However, the success of the deal ultimately depends on federal marijuana legalization in the US, which still looks hazy.
If legalization does occur, growth prospects in the US look encouraging for Canopy, especially in the edibles and beverage market. However, I believe it’s a long shot. How Canopy’s strategies might work out is something to watch for in 2020.
Meanwhile, Canopy has expanded its hemp market in the US by setting up production facilities in New York and Illinois. The MD&A also discusses Canopy’s global operations. CGC has expanded its base in countries where marijuana is legal. Canopy also exports cannabis-based medicines and consumer CBD products outside Canada.
According to the MD&A, CGC holds regulatory approvals to export its products to Brazil, Chile, Australia, the Czech Republic, Denmark, Colombia, Spain, Lesotho, Poland, Germany, the United Kingdom, Jamaica, South Africa, and the United States.
Furthermore, Canopy has conquered the Latin America market. Notably, it focuses on low-cost production in Colombia. In Peru, Canopy has made a distribution agreement with one of Peru’s pharmaceutical distributors.
What do we think?
Investors and analysts had high hopes from Canopy Growth for fiscal 2020. Analysts had expected the company to hit 1 billion Canadian dollars in sales by fiscal 2020. However, the growth of the sector this year drove down analysts’ estimates. Now, analysts expect the company to hit its 1 billion sales target mostly by fiscal 2021. I feel that it will entirely depend on the revenue from the new edibles and beverage expansion in Canada.
Among its peers, Aurora Cannabis, Aphria (APHA), Cronos Group (CRON), and Hexo (HEXO) plan to launch their products for Cannabis 2.0. Aurora and its peers’ stocks have suffered this year. To read more on this, take a look at Why Aurora Cannabis Stock and Peers are Struggling. Furthermore, markets also expect cannabis 2.0 expansion to drive growth for cannabis companies.
Meanwhile, to get more information on the marijuana industry, please check 420 Investor Daily.