Canopy Growth Archives - Green Market Report

StaffSeptember 27, 2022
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5min4830

The Daily Hit is a recap of cannabis business news for Sept. 27, 2022.

ON THE SITE

10 Multistate Cannabis Companies Owe Half a Billion in Federal Taxes

All told, the 10 multistate operators owe the Internal Revenue Service an eye-popping $507,193,000, according to their second quarter financial reports. Much, or perhaps all, of the tax debts have been deliberately not paid by companies so that the businesses can use the cash to fund operations or other plans, multiple sources said. Read our analysis here.

Canadian Cannabis Giant Canopy Growth Quits Retail Game

The once-high-flying Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) announced Tuesday that it’s selling off all of its retail cannabis stores across Canada in order to focus on “its path to profitability.” That path means being more of a core consumer packaged goods business instead of a vertically integrated cannabis company, according to a news release from the company. Read more here.

Real Brands to Buy Boulder Botanical for $12 Million

Real Brands (OTCQB: RLBD) agreed to acquire Boulder Botanical & Biosciences Laboratories, a manufacturer of white-label and private-label wellness and sports medicine herbal supplements and CBD products, from Frankens Investment Fund LLC, which acquired Boulder Botanical in April 2022. Read more here.

IN OTHER NEWS

Charlotte’s Web Signs Distribution Agreement with Southern Glazer’s Wine & Spirits

Charlotte’s Web Holdings, a manufacturer of hemp-derived cannabidiol extract wellness products, has signed a multiyear distribution agreement with Southern Glazer’s Wine & Spirits, a distributor of wine and spirits. Charlotte’s Web CBD gummies, capsules and oil tinctures will be available through Southern Glazer’s retail customer network. Read more here.

The Parent Co. Completes Acquisition of Calma

TPCO Holding Corp. (The Parent Co.) (NEO: GRAM.U) (OTCQX: GRAMF) completed its acquisition of the remaining 15% equity of its Calma Weho LLC dispensary following receipt of all necessary regulatory approvals. Located in the Los Angeles metropolitan region, the 3,250 square foot dispensary is one of only 11 stores in the West Hollywood area licensed for storefront retail. Read more here.

Entourage Launches Medical Cannabis Marketplace

Entourage Health Corp. (TSX-V:ENTG) (OTCQX:ETRGF) (FSE:4WE), a Canadian producer and distributor of cannabis products, has launched Syndicate, a direct-to-patient medical cannabis marketplace. The Syndicate marketplace showcases a variety of specially curated products and formats made in-house and/or sourced from microcultivators looking for a medical distribution outlet. Read more here.


Debra BorchardtAugust 22, 2022
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10min150

As markets mature in the U.S., some companies are turning their focus to Germany. Canadian companies have faced tremendous competition causing many business models to break down. Too many licenses and plunging prices have forced several companies to merge or restructure. In the U.S., the California market is in disarray over outrageous taxes and a resurgent illicit market, while Colorado learns that having a first market advantage doesn’t mean it’s lasting. 

New Jersey has undoubtedly given a boost to the lucky licensees that have been the first to sell adult-use cannabis. New York’s adult-use launch has been disappointing to say the least. That’s why some companies have zeroed in on Germany.

Market Start Date

Cantor Fitzgerald issued a report today looking at the German adult-use cannabis market and sizing it up. While the program isn’t even established yet, Analyst Pablo Zuanic believes sales could begin in early 2025. He wrote, “The actual start of sales may be more dependent on whether imports are allowed (a big if) or if only domestic production can supply the German rec market (Canada, the only G-7 rec market, does not allow imports). If imports are allowed (more likely from within the EU only, at first, at least), we think sales could begin as soon as early 2024E (assuming potential exporting countries enact rules that allow the export of rec cannabis).” 

Market Size

As the actual timing for the opening of the market remains a product of guesswork, the size of the market is equally hard to pin down. It’s hard to say how much cannabis the population will want to consume. Zuanic looked at the various U.S. states to try to gauge a number. If California clocks in at $130 per capita spending and Colorado comes in at $350, a conservative assumption would be $150 per capita for Germany. The analyst says that would imply a $3 billion market and if he bumps that up to $200 per capita, it could be a $17 billion market. A big caveat to these numbers is the currently existing medical marijuana in the country. That market, which started in 2017, has been slow to materialize, with only €300 million in sales. Besides Cantor, in 2018, Prohibition Partners had projected a €1Bn MMJ market by 2020 for Germany, and BDS Analytics predicted €800Mn by 2022. Both have been far off those targets leading Cantor to be more conservative.

German doctors have often only prescribed medical cannabis as a last resort. A separate option for cannabis consumers in the country has been the newly created wellness centers. These are typically associated with private prescribers, online pharmacies and out-of-pocket costs. It’s described as a ‘quasi-rec’ market giving medical marijuana access to more people willing to pay. However, it demonstrates the stigma that cannabis continues to face in the country as doctors are reluctant to jump on board without more studies to back up the prescriptions.

Market Players

The companies that have targeted the German market are a mix of well known public players and some private companies. The publicly traded companies are:

  • Aurora Cannabis (NASDAQ: ACB)
  • Canopy Growth (NASDAQ: CGC)
  • Tilray (NASDAQ: TLRY)
  • Clever Leaves (NASDAQ: CLVR)

The privately owned companies include:

  • CannaMedical Pharma 
  • Four20 Pharma
  • Demecan
  • Bedrocan
  • Little Green Pharma

Tilray – Tilray claims it is the market leader both in flower and full-spectrum extracts, and claims the best distribution reach. However, Cantor notes that several other sources question the notion that Tilray is the market leader in flower MMJ. Market data points to Tilray having a 15% market share, while the company suggests the actual number is closer to 20%. The report stated, “Tilray flower is sold to pharmacies at €8.59 per gram, above the market average estimated at €7. Tilray began domestic production last year (one of three licensees, together with Aurora and Demecan), and it also imports from its facilities in Portugal (where we were told by management it can produce up to 20 tons). Based on its current German presence, global scale, and proven expertise, we expect the company to be a relevant player in the future German rec market.”

Aurora Cannabis –  Zuanic wrote that Aurora management says its number two in medical flower with 17% volume share and that Bedrocan is number one (but the Bedrocan product is distributed across various wholesalers, and not always captured by the Insight Health under the Bedrocan brand).  The report said, “Aurora also holds one of the three licenses to produce med cannabis in Germany (combined, the three licenses amount to a 2.6-ton quota), and we were told by management that operations began in July 2022.” Cantor thinks Aurora could snag one of the adult-use licenses and become a key player.

Canopy Growth – Cantor says that Canopy Growth remains a top-five player in the German flower market, with consistent supply from its Canadian facilities, selling under its own brands(although it seems it will need to transfer its Spectrum brand to the new owners of C3). Zuanic wrote, “In our view, if Germany decides to allow only domestic production and imports from only within the EU, Canopy Growth will need to find local partners or build new capacity.”

Clever Leaves – The Cantor report said, “In our view, the company is more in an early-stage phase in Germany compared with its larger peers, but its five-pronged route to market in Germany gives it options depending on the framework that Germany ends up implementing for rec cannabis.” According to Cantor, Clever Leaves supplies two CBD-only extracts to Ethypharm (a small local pharma company); it supplies bulk cannabis extracts to FoliuMed and it ships high THC cannabis flower to wholesale/distributor Cansativa (in which it owns a 9% equity stake). Cantor also said Clever Leaves distributes its own medical flower brand Iqanna; and recently announced an agreement with importer/wholesaler Cantourage to sell a second high potency flower SKU under the Iqanna brand. 

In Closing

While it’s too soon to know who will be the winners or losers in the German market, Aurora and Tilray currently seem to be the best-positioned. Cantor also pointed out that Curaleaf recently acquired Four20 Pharma, one of the top five players. So, the Curaleaf competition can’t be measured just yet. Zuanic thinks as the U.S.legalization situation remains undetermined, some investors may want to shift their focus to Germany and put these names back on the radar.

 


Adam JacksonAugust 11, 2022
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12min591

As talks revolving around the federal legalization of cannabis splinter in Congress, the question of whether the nascent industry can eat beverage alcohol’s margins remains a growing one.

In a report, titled, “Is Cannabis a Threat to Alcohol Sales?” BDSA Consumer Insights contends that while the crop is as popular as ever, any real breakthrough of consumer participation in adult-use and medical markets remains stymied in D.C. – casualties of political animosity and procedural acrobatics aimed at slowing progress.

Consumption Is High

“In just a few short years, attitudes towards cannabis across the country have shifted rapidly, with the share of those who have “bought-in” to cannabis consumption skyrocketing while fewer and fewer report not being open to consuming cannabis,” the report said.

BDS Analytics data showed that this past Spring, 51% of Americans in adult-use states claim to have consumed cannabis in the past six months, up 15% from Spring 2020. At the same time, the share who claim to be rejecters (non-consumers who are not open to consuming in the future) fell from 31% in Spring 2020 to just 23% in Spring 2022.

Overall consumer participation is lower in medical markets, yet BDS Analytics data suggest that consumer participation is growing at a similar rate.

The share of those who report past six-month consumption ballooned from just 26% to 41% between Spring 2020 and Spring 2022 – as the share of rejecters fell from 34% to 28% over that same period.

These realities have left many companies considering what they can learn from the alcohol industry — or how they can partner — as it continues to languish within its own prohibition.

“When we look deeper into the data, we see a cannabis consumer base that is knowledgeable, open to trying new product formats, and willing to experiment with incorporating cannabis consumption into more occasions throughout their lives,” the report said.

Stacking up to Big Alc

While consumer usage rates are starting to near beverage alcohol levels, experts generally agree that significant cannibalization of alcohol by cannabis would likely only occur over the course of at least another generation.

“While the trend toward alcohol’s displacement by cannabis is a durable one, especially among young adults, it is likely going to be a generational one, rather than one manifested in the next few years,” BDS Analytics Andy Seeger said. “Furthermore, it is expected that growing social acceptance will both increase substitutability and strengthen public preferences for cannabis over alcohol, though not completely dissuade cannabis consumers from drinking.”

Together, U.S. legal and illicit sales have been estimated to be $97 billion in 2021 – edging out against $87 million in spirit sales. Demand for cannabis in the U.S. now exceeds what the nation annually spends on spirits – and roughly matching what it spends on beer – according to a report by New Frontier Data.

Two-thirds of cannabis consumers surveyed by New Frontier said that they drink alcohol at least once per month, but 61% say that given a choice, they prefer cannabis.

Additionally, one-third of respondents said that they would like to quit drinking alcohol altogether, “though it is likely that the significant difference in social acceptability between alcohol and cannabis makes it more difficult to stop drinking entirely,” New Frontier wrote.

In another study, Colorado households – compared to all other states that did not legalize recreational cannabis – showed a 13% average monthly decrease in purchases of all alcoholic products combined and a 6% decrease in wine, according to a July 2021 report published in the Journal of Cannabis Research.

However, complicating the idea that cannabis will hurt alcohol sales, researchers’ findings showed that Washington saw an increase in spirits purchased while Oregon showed a significant decrease in monthly spirits purchased when compared to all other states without legalized recreational cannabis.

The conclusion was that the results “suggest that alcohol and cannabis are not clearly substituted nor complements to one another.”

“Future studies should examine additional states as more time passes and more post-legalization data becomes available, use cannabis purchase data and consider additional methods for control selection in quasi-experimental studies,” it said.

Shifting the culture (through regulatory action)

While the nature of cannabis consumption typically resides within the home, finding margins outside of those living spaces has been an ongoing challenge that has frustrated entrepreneurs in the industry.

Those who consume are consuming more often as consumers are pairing cannabis with alcohol and a variety of activities, BDS Analytics said in its report – though the lack of a three-tier system and on-premise regulation prevents cannabis companies from creating social hubs with experiences tied to their product.

“There is very, very little on-premise spending right now, which does add the margin,” Seeger said. “And that’s one of the things that the market, in general, is fighting right now – is a way to find margin. Those kinds of occasions would do that. That’s certainly what we see in beverage alcohol.”

According to BDS Analytics, the share of consumers in adult-use markets who report pairing cannabis with spirits or liquor rose from 12% in Spring 2018 to 22% in Spring 2022, while the share who report cannabis with cocktails doubled to a total of 20% in Spring 2022.

Pairing Up

Additionally, BDS Analytics found that consumers are increasingly pairing cannabis with activities not typically associated with cannabis.

The share of consumers in adult-use markets claiming that they pair cannabis with fine dining rose from 14% in Spring 2020 to 25% in Spring 2022, while the share of those who report using cannabis while exercising rose from 18% in Spring 2020 to 26% in Spring 2022.

“While these increases may not seem shocking to savvy industry insiders, they demonstrate that the use occasions for cannabis are incredibly varied,” the report said. “They also show opportunity for brands that can produce product with form factors and targeted formulations that speak to these varied need states and use occasions.”

Innovations in rapid-onset technology help push cannabis-infused, non-alcoholic beverage products to create a standard beverage serving of Delta-9 THC, such as Keith Villa’s non-alcoholic, cannabis-infused, Belgian-style ale — Ceria Brewing Co. — which sold out in Colorado dispensaries four hours after it’s release; or corona importer Constellation Brands multi-billion dollar investments in Canopy Growth.

Alcohol Meets Cannabis

More recently, distributing partnerships between cannabis companies and the alcohol industry are sprouting.

Fresh Hemp Foods, a part of Tilray’s Wellness (NASDAQ: TLRY) division, signed a distribution agreement on Wednesday with Southern Glazer’s Wine & Spirits — one of the nation’s largest distributors of wine and spirits.

The pact will provide Tilray Wellness with direct access to the alcohol distributor’s network, “reaching consumers everywhere from local bars and restaurants to independent and national grocery chains and convenience stores.”

“This agreement helps Tilray uniquely position itself to enter the multi-billion-dollar adult beverage category with a non-alcoholic, CBD beverage alternative, for consumers who want to relax and unwind,” said Tilray Wellness and Fresh Hemp Foods president Jared Simon.

The agreement allows Tilray to develop a U.S. CBD beverage portfolio within retail channels, “which will transition the category out of the fringe and into the mainstream,” the company said.

“Cannatourism” and the brewery model

Currently, marketing cannabis products toward specific experiential outcomes are limited without a legal framework.

Despite that, the industry has found creative ways to circumvent some of these limitations — even finding parallels with the brewery model.

Operators can establish deeper relationships with customers as people travel to and within states where cannabis is legal to visit the farms where the product is grown, similar to visiting wineries — also known as “cannatourism”.

“It’s a really big opportunity for states that have legalized cannabis to capitalize on that, not just for their own residents but also for tourists that might travel particularly for that,” said Christina Sava, an attorney at Troutman Pepper.

Other services help people find “Bud and Breakfast” spots — onsite consumption lounges in adult-use states such as a 420-friendly bed and breakfast type hotel.

“We kind of take it for granted that you can consume alcohol in entertainment venues and at bars and at restaurants,” Sava said, “but there really aren’t that many sanctioned spaces outside the home to try cannabis and share cannabis with your friends. I think this is an area that is ripe for evolution and will continue to grow.”


Adam JacksonAugust 5, 2022
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5min311

Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) slid in early trading on Friday after the company said it lost over C$2 billion in the second quarter– as falling margins and weak sales continue to plague the industry. The company announced its financial results for the first quarter ending June 30, 2022

The Smiths Falls, Ontario-based cannabis company delivered total revenue expectations of approximately C$122.9 million during the period — eking out over the Stifel analyst estimate for revenues of C$112 million — yet, the company also said it lost C$2.08 billion, or $5.23 a share, versus a profit of C$392.42 million, or C$1.02 a share, in the same time the previous year. The loss was driven by a non-cash, C$1.73 billion goodwill impairment.

Cash Burn

Net revenue dropped 19% to C$110.12 million from C$136.21 million, the company reported. Analysts expected Canopy Growth to lose C$0.29 a share on revenue of C$112.7 million. The company said it held C$1.2 billion in cash and short-term investments at the end of the quarter. The company burned through C$200 million in one quarter as it ended March with $1.4 billion. The company attributed the spending to primarily EBITDA losses, and the upfront payment made as consideration for the options to acquire Jetty Extracts upon federal permissibility of THC in the U.S.

Diluted loss per share in the fourth quarter was C$5.23 versus diluted earnings per share of C$0.84 in the same period last year. Non-GAAP income before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of C$75 million in the second quarter of 2022, compared to losses of C$64 million in the same period last year.

“The cost-saving program announced earlier in the quarter combined with sound expense discipline contributed to a meaningful decline in operating expenses during the quarter,” said CEO David Klein. “We expect cost savings to ramp in the second half of the year, enabling us to execute on our path to profitability even as we continue to invest in strategic growth initiatives including in BioSteel and our U.S. THC ecosystem.”

What Went Wrong

The company blamed its poor showing on its decision to focus on higher margin, premium and mainstream products in the adult-use market. Canopy also noted that it was dealing with the continuing impacts of price compression resulting from increased competition and lower sales in the value-priced dried flower category.  Several regions in Canada were affected by a rapid increase in licenses resulting in a boom of dispensaries. Having said that, the company acknowledged the decrease in the volume of value-priced dried product sold while also enjoying a full quarter of net revenue contribution from Supreme Cannabis. On the medical side, Canopy said that while it did have higher average orders, it was offset by a fewer number of orders.

In the adult-use market, sales fell for all form factors including flower, concentrates and edibles. On the medical side, sales fell for oils and soft gels, but did grow for flower and edibles. In the company’s other consumable products, Bio Steel was the only category that did well and increased 169%. This Works and Storz & Bickel both fell.


StaffAugust 1, 2022
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5min60

The Daily Hit is a recap of the top cannabis business stories for August 1, 2022.

ON THE SITE

Downbeat Earnings Outlook For Scotts, GrowGen and Canopy Growth

Cannabis companies are just starting to roll out the earnings season and with some big names on deck this week, Stifel analysts Andrew Carter and Christopher Growe published an earnings preview report. Once darlings of the cannabis industry, hydroponics are fading fast as the market for Scotts Miracle-Gro (NYSE: SMG) and GrowGeneration (NASDAQ: GRWG) have slowed to a crawl. Read more here.

SOL Sees Hefty Losses, Shrinks Cannabis Holdings

After the markets closed on Friday, SOL Global Investments Corp. (CSE: SOL) (OTCPK: SOLCF) posted colossal losses as it continues to search for stability amid new changes in leadership. The company released the findings in its unaudited financial report card for the second quarter ending May 31, 2022. Read more here.

D.C. Lawmakers Talk Hemp Ahead of 2023 Farm Bill

Lawmakers in Washington D.C. heard testimonies from a slate of hemp advocates and stakeholders in the industry looking to provide input on the commercial production and processing of the crop. The hearing, titled, “An Examination of the USDA Hemp Production Program” was held last Thursday by the Subcommittee on Biotechnology, Horticulture, and Research (Committee on Agriculture). Read more here.

Alexandria Ocasio-Cortez Gets Behind Psychedelic Treatments For Vets

In yet another indication that lawmakers are continuing to step up their interest in psychedelics, Miriam Delphin-Rittmon, the assistant secretary for Mental Health and Substance Use, sent a letter to U.S. Rep. Madeleine Dean (D-PA) in May, saying that the Substance Abuse and Mental Health Services Administration (SAMHSA), a branch of the U.S. Department of Health and Human Services, will be exploring the prospect of setting up a federal task force to address and oversee functions of a private-public partnership focusing on “complex issues” with psychedelics. Read more here.

IN OTHER NEWS

CURE Pharmaceuticals Holding Corp.

CURE Pharmaceutical Holding Corp. (OTC: CURR) (“CURE”), a proprietary platform technology company, today announced that the company will be hosting a teleconference with management on Wednesday, August 3, 2022, at 5:00 pm Eastern Time to discuss the recent $20 million non-dilutive sale of a small portion of its product and intellectual property portfolio and to provide a business update. Read more here.

Jerry Garcia Wellness

Jerry Garcia Wellness, the CBD-centric business that evokes the vision and values of Jerry Garcia, announced today the launch of its CBD wellness brand and products. Known as the founder of The Grateful Dead, one of the most successful touring bands in rock and roll history, Jerry Garcia was an early proponent of cannabis legalization and believed in its natural benefits decades before it became widely recognized as an effective aid to health and wellness. Read more here.

Braxia Scientific Corp.

Braxia Scientific Corp., (CSE: BRAX) (OTC: BRAXF) (FWB: 4960), a medical research company with clinics providing ketamine and psilocybin treatments for depression and related disorders, today announced the filing of its audited financial statements and management discussion and analysis for the year ended March 31, 2022. Read more here.


Debra BorchardtAugust 1, 2022
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9min190

Cannabis companies are just starting to roll out the earnings season and with some big names on deck this week, Stifel analysts Andrew Carter and Christopher Growe published an earnings preview report. Once darlings of the cannabis industry, hydroponics are fading fast as the market for Scotts Miracle-Gro (NYSE: SMG) and GrowGeneration (NASDAQ: GRWG) have slowed to a crawl. He wrote, “The 2021/2022 hydroponics recession has been deeper and longer than we originally anticipated with a significantly greater impact to our covered companies than we originally anticipated. But, we contend the hydroponics category will at minimum regress to underlying demand for cannabis (HSD) with an improvement in durables demand eventually taking hold.” The coverage for Canopy Growth (NASDAQ: CGC) basically said that the company’s cash burn is destroying the company’s value. 

Scotts Miracle Grow

The analyst is being super cautious on his numbers and estimates that the third fiscal quarter earnings will be $1.55 for Scotts. This is a 60% drop from last year and according to Carter,  well below consensus ($1.74). “We believe consensus estimates do not fully appreciate the magnitude of the challenges impacting F3Q22 outlined with the June update: adverse April weather impacting U.S. Consumer purchases of higher margin lawn care products, retailer inventory reductions, Hawthorne underlying revenue decline accelerating, fixed cost deleverage, and inflation not fully offset by pricing.,” he wrote. “We estimate total revenue will decline 26% with the gross margin down 830 bps. We estimate U.S. Consumer F3Q22 revenue will decline 15% with volume down 25%. We estimate Hawthorne revenue will decline 59% with the underlying revenue decline accelerating to -63% (-48% F2Q22).”  He said he is keeping his full-year estimate of $4.76, which is roughly in between the company’s guidance range of $4.50 – $5.00.

Carter went on to point out that investors will have a hard time finding anything to motivate them to buy shares for a while. The company could finish the year at 6X debt/EBITDA, not too appealing for investors. He suggested spinning out the Hawthorn division, but then also said the chance to do so has probably passed.

“We have written positively about a potential separation of the two segments (core Consumer, Hawthorne), potentially as a source of unlocking value, but also necessary with capital allocation increasingly inefficient,” said the report. “But we believe this is no longer a viable option with the current structure’s inefficiencies for capital allocation and investor interest an ongoing headwind. We view the RIV Capital investment as a poor use of capital with the strategy articulated by the company undifferentiated and misguided (in our view) with the pursuit highlighting the corporate ownership structure’s risks.” He is maintaining a share target price of $93 and the stock was lately selling at approximately $86 a share.

GrowGeneration

Carter’s estimate for GrowGen’s second-quarter revenue is $85 million, which is a drop of -32% over last year and just above consensus. “Our outlook includes a 41% decline in organic revenue growth: 50% same-store sales decline, a 20% decline for the combined e-commerce platform, +20% underlying growth from distributed products, incremental contributions from new stores and expanded locations,” the report said. Having said that, the analyst was more favorable to GrowGen than to Scotts. He thinks that the company’s cost savings plan will help it in the back half of 2022. He also noted that his estimates didn’t include benefits from reduced inventory levels, and he thinks rightsizing the inventory will be a tailwind for cash flow aiding the company’s efforts to achieve break-even cash flow while investing behind the organization.

Carter even went on to write that he thinks his 2023 outlook will prove to be conservative, however, he walked that back a little saying, “but proof points for a recovery have yet to take hold even as we start to anniversary softer category trends from one year ago.” He is maintaining his Hold rating and believes it will take time for enthusiasm to return to the sector of hydroponics. He did point out that GrowGen has $60 million in cash and is making the right investments, it’s just that investors won’t see that return for some time. His target price is $5.50 and the stock was lately trading at $4.74. 

Canopy Growth

The rare Wall Street sell rating is given to Canopy Growth by Carter, who has also lowered his price target to C$2.90. The stock recently closed at C$3.29. The report said, “We approach our estimate for a C$80 million adjusted EBITDA loss cautiously; our estimates suggest modest underlying improvement y/y driven by cost savings/synergy realization against sales declines include higher margin C3 sales against the C$64 million 1Q22 loss (included C$20 million COVID subsidies). We estimate a total cash burn of C$130 million.” He believes revenue will fall 4.5% in the fiscal year 2023 and was very focused on the company’s cash burn. He estimated the company will burn through $630 million by the fiscal year 2024. 

He went on to write, “We believe the magnitude of the ongoing losses and risks associated with liabilities remain underappreciated with all non-Constellation shareholders bearing outsized risk. The recent early conversion of C$263 million of convertible debt provided additional flexibility reducing liabilities, but at a significant cost to equity holders with the shares down 35% following the announcement (S&P 500 +1%) through final pricing.” He thinks the company may retire even more convertible debt that could further dilute shares by as much as 21%. He finished with a quick analysis of the parts writing, which suggested no value for the global cannabis businesses given the significant losses; C$17 million for the Canadian retail network; C$450 million of value to Canopy for Biosteel, Storz and Bickel, and This Works; and C$982 million for investments in U.S. with the options valued at 50% of capitalized value not including Jetty.”  However, he did note that there could be a quicker improvement in the company’s fundamental performance, platform innovation could quickly gain traction and maybe there could be creative actions by Constellation Brands that could drive value. 

 


StaffJuly 21, 2022
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3min333

After the market closed on Wednesday, Fitch Ratings downgraded the Long-Term Issuer Default Ratings (IDR) for Canopy Growth Corporation (NASDAQ: CGC) and 11065220 Canada Inc. to ‘RD’ from ‘C’ on the completion of Canopy’s exchange offer for a portion of the convertible notes due July 2023. This means Fitch considers it a distressed debt situation.

Fitch said it has reassessed and upgraded the IDRs to ‘CCC’ post completion of the exchange. Fitch has also affirmed the ‘B’/’RR1’ratings for the senior secured term loan facility at Canopy and the co-issuer, 11065220 Canada, Inc.

The statement said, “The post-exchange IDR of ‘CCC’ reflects Canopy’s ongoing operational risks with executing its operating strategies, the high cash burn rates and the uncertain path to profitability that has reduced liquidity. The exchange only partially addresses the 2023 maturity, with C$337 million remaining outstanding of which Constellation Brands, Inc. (NYSE: STZ) continues to hold C$100 million.”

It went on to say, “As such, Fitch could take further negative rating actions if Canopy pursues a repayment/refinancing of the remaining 2023 notes that Fitch considers a distress debt exchange per criteria, a lack of execution on the premiumization cultivation strategy, or if Fitch views that the strategic incentive for CBI to support Canopy has lessened. The current rating incorporates a one-notch uplift from the standalone credit profile (SCP) at ‘CCC-‘.”

Underperformance

2021 Canadian cannabis retail sales grew by around 50% to C$4 billion, according to Statistics Canada. However, Canopy materially underperformed Fitch’s and the company’s own expectations of growth in line with or better than the market, with revenues in the Canadian cannabis channel decreasing by 10% in fiscal 2022 to C$258 million. Canopy lost share, in part, due to its pivot away from the value segment.

Fitch noted that marketplace dynamics are challenging, including evolving consumer preferences, and the competitive environment with significant pricing compression, particularly in the value segment has caused material profitability pressures. Consequently, Canopy has recognized significant asset impairments.


StaffJuly 19, 2022
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7min120

The Daily Hit is a recap of the top cannabis business stories for July 19, 2022.

ON THE SITE

Will Cannabis Be Recession Proof?

No one can predict a recession, but it seems likely that some sort of stress is expected on the economy. On a positive note, the big banks have all seemed to dial down the heat on recession fears. During the latest round of earnings here’s what some of them said. Read more here.

High Tide Finds Funds In Bought Deal

High Tide Inc. (NASDAQ: HITI) (TSXV: HITI) has entered into an agreement with a syndicate of underwriters led by Echelon Wealth Partners Inc. have agreed to purchase 4,310,400 units at a price of C$2.32 per Unit for total gross proceeds of approximately C$10 million. Despite raising the money in the bought deal, the company cautioned in its remarks that the overall cannabis landscape was becoming more challenging. Read more here.

CBD’s Future Totally Dependent On FDA

Cannabis research firm Brightfield Group released its CBD: FDA Impact and the Path Forward/ 2022 Mid-Year US CBD Report, which found that growth in the CBD industry is “heavily dependent” on Food and Drug Administration (FDA) regulation, though there has been little progress on federal regulation for cannabidiol (CBD) since provisions removing hemp and hemp derivatives from prohibition were passed in the Farm Act of 2018. Read more here.

Psychedelic Decriminalization Picks Up Steam

It seems like every other week or so, another city or state is working on the decriminalization of psychedelics. In fact, the whole country is virtually awash in legislative action related to reforms about psychedelics. It’s been an active three years, with no slowdown in sight for 2022. Read more here.

IN OTHER NEWS

Canopy Growth Corporation

Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced yesterdaay that it has closed its previously announced exchange transaction of certain 4.25% unsecured notes due 2023 in order to reduce its debt obligations by approximately $263 million. Constellation Brands, Inc., through its wholly owned subsidiary Greenstar Canada Investment Limited Partnership, participated in the transaction. Read more here.

Tilray Brands, Inc.

Tilray Brands, Inc. (Nasdaq: TLRY; TSX: TLRY), a global cannabis-lifestyle and consumer packaged goods company, today announced that its medical cannabis division, Tilray Medical, launched a new cannabis education platform, WeCare-MedicalCannabis, dedicated to providing resources and educating healthcare practitioners and patients about medical cannabis. Read more here.

Juva Life Inc.

Juva Life Inc. (CSE: JUVA) (OTCQB: JUVAF) (FRANKFURT: 4VV), a life science company with pharmaceutical research and development and consumer-facing operations in cannabis production and distribution, today announced its financial and operating results for Q1 of 2022. $1.16 million of revenue was generated in Q1 2022, almost double the $.58 million of revenue in the same period for the prior year. Read more here.

Kaya Group

Kaya Group (OTC: NUGL), the first medicinal Ganja herb house in the Caribbean and holistic, wellness-focused ecosystem, has now received its first orders for its Jamaican roots herbs brand in the fast-growing California and U.S. market. California has sold $13.5 billion of adult-use cannabis since launching sales in 2018. Read more here.

springbig

springbig (NASDAQ: SBIG, SBIGW), a provider of SaaS-based marketing solutions, consumer mobile app experiences and omni-channel loyalty programs to the cannabis industry, today highlighted data recorded during the weekends of July 4 and July 10. On Independence Day, the company recorded an 18% increase in texts sent and a 22% increase in total campaigns distributed. Additional data obtained by springbig also highlighted an increase in overall sales, reward redemptions and visits. Read more here.

Purissima

Purissima, a biotechnology health and wellness company, announced today an exclusive, multi-year processing and distribution partnership with Open Book Extracts, a total solution provider for high quality cannabinoid ingredients, concept-to-market formulation services, and finished goods manufacturing for the industry’s leading brands. This collaboration also marks Purissima as the first company to achieve commercial scale production of minor cannabinoids using Purissima’s proprietary algae-based fermentation platform. Kicking off production in July 2022, the compounds are proposed to be available to manufacturers and sold to consumer brands before fall 2022. Read more here.

IM Cannabis Corp.

IM Cannabis Corp. (CSE: IMCC) (NASDAQ: IMCC), a medical and adult-use recreational cannabis company with operations in Israel, Canada, and Germany, today announced that the company received written notification from The Nasdaq Stock Market LLC on July 13, 2022, that the company is not in compliance with the minimum bid price requirement set forth in Nasdaq Rules for continued listing on Nasdaq. Read more here.

ZYUS Life Sciences Inc.

ZYUS Life Sciences Inc., a Canadian life sciences company leading scientific research and development in phyto-therapeutics, has completed its first international shipment of ZYUS’ first-generation cannabinoid oil formulations to the Australian medical cannabis market in preparation for the sales and distribution under Australia’s Therapeutic Goods Act special access and authorized prescriber scheme. Read more here.


StaffJuly 6, 2022
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6min70

The Daily Hit is a recap of the top cannabis business stories for July 6, 2022.

ON THE SITE

Fitch Ratings Downgrades Canopy Growth on Recent Debt Deal

Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDR) for Canopy Growth Corporation (NASDAQ: CGC) and 11065220 Canada Inc. to ‘C’ from ‘CCC’. Fitch said it has affirmed the ‘B’/’RR1’ratings for the senior secured term loan facility. The downgrade comes after Canopy’s announcement that it had entered into privately negotiated exchange agreements with a limited number of convertible noteholders including Constellation Brands, Inc. (NYSE: STZ) through its wholly-owned subsidiary to acquire approximately CAD263 million principal amount of the notes in exchange for Canopy common shares and approximately C$3 million in cash. Read more here.

High Times Buys Consumption Lounge Paying With Zero Value Stock

Cannabis publisher Hightimes Holding Corp. posted a new filing with the SEC announcing that it made a deal back in April to buy a consumption lounge in West Hollywood CA called The Mezz. The deal apparently took place on April 8, 2022 as High Times entered into a Membership Interest Purchase Agreement with Courtney Zalewski, as manager of The Mezz La Brea, LLC, and the holders of a majority-in-interest of the issued and outstanding membership interests in The Mezz. According to the filing, The Mezz sold for $6 million consisting of  $1,500,000 in convertible promissory notes and  $4,500,000 of Hightimes Class A common stock. Read more here.

LeafLink Reports Drop In May Cannabis Sales

Cannatech company LeafLink’s June Flash report indicated that the month of May was a mixed bag for cannabis category sales, state-by-state performance, and pricing analysis. The report analyzed data from Leaflink’s wholesale brand distribution and retailer platforms, with markets in Arizona, California, Colorado, Michigan, Nevada, Oregon, and Massachusetts. Read more here.

Dispensaries like Bank Buildings But It’s Not The Vaults

Bank buildings are becoming attractive locations for cannabis dispensaries, but fortified vaults aren’t the reason. The banking industry has been closing bank branches by the thousands. According to the National Community Reinvestment Coalition, 9% of all branch locations in the U.S. closed between 2017 and 2021 or roughly 7,500 brick and mortar locations. This move really picked up steam during the pandemic when most people migrated to online banking. Bank consolidation and improvements in mobile banking have also contributed to the banks giving up their locations. Read more here.

5 Reasons 2022 Will Be Big For Psychedelics

Today in the psychedelics industry there is a flurry of activity by some of the industry’s biggest donors, business developers, celebrities, and other movers and shakers who are not only upping their involvement in the industry today but also laser-focused on where it is going. Read more here.

IN OTHER NEWS

Akerna Corp.

Business intelligence from Akerna (Nasdaq: KERN), an enterprise software company and the developer of technology infrastructures for the global cannabis industry, today announced that U.S. cannabis shoppers spent a total of $255.5 million on adult-use and medical cannabis products during the Fourth of July weekend. Read more here.

NewLake Capital Partners, Inc.

NewLake Capital Partners, Inc. (OTCQX: NLCP), a provider of real estate capital to state-licensed cannabis operators, today announced $50 million of investments across three properties, marking the full commitment of capital raised during the company’s initial public offering. NewLake acquired two properties from a leading publicly-traded U.S. multi-state cannabis operator and amended its existing lease with another leading publicly-traded U.S. MSO to fund an already completed expansion. As of June 30, 2022, NewLake has approximately $28.7 million of unfunded commitments. Read more here.

TPCO Holding Corp., Curio Wellness

TPCO Holding Corp. (NEO: GRAM.U) (OTCQX: GRAMF), a consumer-focused California cannabis company, today announced that it has entered into an exclusive brand licensing and cultivation and production agreement with Curio Wellness, to bring the company’s brands and top-quality products to the State of Maryland, with anticipated market launch in late 2022. Read more here.

Rocky Mountain High Brands, Inc.

Rocky Mountain High Brands, Inc. (OTC: RMHB) today announced the launch of Rocky Mountain NexBev, Inc. a wholly owned subsidiary specializing in cannabis beverages. NexBev will work to ensure CBD Life Mexico S.A. de C.V. has product and build RMHB’s HEMPd brand by utilizing a strong network of cannabis co-packers throughout the United States. Read more here.

 


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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