On April 6, Bruce Linton, the co-founder and former Co-CEO of Canopy Growth, spoke with Bloomberg BNN. He said that Canopy Growth (NYSE:CGC)(TSE:WEED) and Cronos Group (NASDAQ:CRON) are better equipped to withstand the COVID-19 storm. Linton, the current executive director of Vireo Health International, said that both of the companies have billions of dollars to spend. As a result, the companies have solid footing. However, he said that even Aphria’s financial position looks strong.
Speaking about the US cannabis companies, Linton said, “After that, I frankly don’t see cash coming in. U.S. companies are very busy but their access to capital is quite limited. Anything that was starting in Europe has been stalled for the past four, five weeks.”
The US and Canada have classified medical marijuana as an essential service. So, Linton expects that companies with a dedicated medical patient base could also perform well. He said that companies looking to raise capital might struggle.
The Bloomberg BNN article added that Linton’s comments came on the day when iAnthus Capital Holdings defaulted on the payment of interests for $157 million on debentures. The company’s board blamed cash constraints due to COVID-19 for the default.
WEED and CRON’s cash position
By the end of 2019, Canopy Growth had 2.3 billion Canadian dollars of gross cash. The gross cash declined from 2.7 billion Canadian dollars from the previous quarter. In the first nine months of fiscal 2020, the company utilized net cash of 548.2 million for its operating activities. Meanwhile, Cronos Group had $1.5 billion of cash, cash equivalents, and short-term investments as of December 31, 2019. Last year, the company utilized $130.0 million of cash to fund its operating activities. So, both of the companies are in a strong cash position.
I have been advocating for a “buy” on Canopy Growth for some time. The company has already introduced Cannabis 2.0 products, like chocolates and beverages, in the markets. Canopy Growth has also launched its CBD brand, “First & Free,” in the US. So, I think that the company is well-position to capture the Cannabis 2.0 market in Canada and the CBD market in the US. Meanwhile, Cronos Group reported a dismal fourth quarter last month. Read Why Were Cronos Group’s Q4 Earnings a Shipwreck? to learn more.
So far in 2020, the cannabis sector has underperformed the broader equity market. The ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have declined by 36% and 33.7% YTD, respectively. Meanwhile, the S&P 500 Index has fallen by 17.6% during the same period. The weaker-than-expected demand for Cannabis 2.0, pricing pressure, and higher-than-expected losses have dragged the sector down. Meanwhile, WEED and CRON have lost 25.8% and 24.8% of their stock values in 2020, respectively.