Canopy Growth Corp (NYSE: CGC) is the world’s largest cannabis company, but recent events have found many analysts choosing to downgrade the stock. The departure of their long-time CEO and co-founder was the first of many warning signs that investors picked up on.
In August, Canopy reported a surprise $1.4 billion loss which shocked investors, leading to a further decline in the stock. However, the same CEO that was fired by the company remains highly optimistic about Canopy and has even bought more shares for himself.
Bruce Linton spoke today in an interview with Yahoo Finance where he said that the worst has passed for Canopy Growth in terms of these declines. While there are far more bearish voices in the market now regarding the company, citing falling profit margins, the co-founder wasn’t overly worried.
“A 52-week low is a good thing, right, if you’re trying to buy. It’s bad to sell. If they spent their money on balloons and party favors and there was no durable value that’d be a problem,” said Linton, dismissing worries about the $1.4 billion in losses seen by the company this quarter. “But instead, they created a whole bunch of intellectual property, filed a ton of patents, saw more shipments going international than ever before, which shows me that they are actually looking long-term and implementing what I think is the right plan which is to continue to create durable, differentiated products because they are actually novel and protected.”
Shares of Canopy Growth continued to fall, seemingly not caring for Linton’s comments as the stock fell by another 5.3 percent today. Canopy has been one of the main losers in the cannabis sector after all the bad news surrounding its financial situation came to light. Shares have fallen by over 50 percent since hitting a high in May.
The silver lining here is that most of these losses came from seemingly over aggressive M&A activity, which represented over $800 million out of the $1.4 billion losses, so the management team can quickly curb back on expenses if it wishes to do so.
Regardless, investors are still highly worried that the company spent so much of its cash reserves so quickly. They also aren’t impressed that the company still hasn’t reported a profit and that the margins for their dry cannabis are falling, a worrying sign for the cannabis giant.
What’s even worse is that their sale prices for recreational cannabis, a market that’s expected to expand significantly in the years to come, has fallen the most. This could hamper Canopy from truly taking advantage of this market growth as other companies with larger profit margins benefit the most.