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Canopy Growth Delays Launch of Infused Beverages

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On December 6, 2019, Canopy Growth (NYSE:CGC) (TSE:WEED) announced that it would introduce some cannabis-infused beverages in early January 2020. However, on January 17, management announced that it’s delaying the launch of the cannabis-infused beverages due to a delay in the scaling process.

In the press release, Canopy Growth’s management stated that they submitted the final documentation for its beverage facility to Health Canada in late June 2019. The company received the license in late November 2019. The company only had seven weeks to scale its cannabis-infused products from lab to commercial scale. Although management expressed satisfaction with the progress Canopy Growth made in those seven weeks, the internal teams were still working on the final details to meet customers’ high standards. So, the company revised the launch date.

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Despite the delay, Canopy’s management was confident about its technology and ability to scale production. The company announced that it would deliver high quality and differentiated cannabis beverages to its customers. Management added that it would provide more information during the third-quarter earnings call for fiscal 2020. The company will report its third-quarter earnings after the market closes on February 14. Management thinks that the delay in the beverage launch won’t have a significant impact on its fiscal 2020 revenues.

Analysts have mixed opinions on Canopy Growth’s announcement

As reported by BNN Bloomberg on January 17, Owen Bennett of Jefferies thinks that Canopy’s infused beverages were the key Cannabis 2.0 product category for the company. So, the delay in the launch could dent investors’ confidence in the company. In his research, Bennett wrote that Jefferies already lowered its revenue estimates. He thinks that Canopy Growth might struggle to achieve its guidance of a 40% gross margin target by the end of the year.

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According to the BNN Bloomberg article, Douglas Miehm of RBC Capital Markets wrote in his research note that the company could have faced certain engineering issues while infusing the THC solution to a beverage. The issues could have delayed the introduction of beverage products. However, Miehm is confident in Canopy Growth’s production capabilities. He added that the company is ahead of its peers in the beverage category.

Stock performance

After falling 25.4% in 2019, Canopy Growth has experienced a strong recovery this year. The stock has returned 19.3% YTD as of January 17. Despite the surge, the company is still trading 54.1% lower than its 52-week high of 70.98 Canadian dollars. We think that the company has significant upside from its current levels. Read Must-Know: Is Canopy Growth Still a Buy? to learn more.

Cronos Group (NASDAQ:CRON) and Aphria (NYSE:APHA) have returned 12.1% and 1.5% YTD, respectively. However, Aurora Cannabis (NYSE:ACB) has lost 0.7% of its stock value this year. The ETFMG Alternative Harvest ETF, which fell by 31.4% in 2019, has increased by 9.5%.

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