Canopy Growth Archives - Green Market Report

StaffMay 18, 2022
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The Daily Hit is a recap of the top cannabis business stories for May 18, 2022.

ON THE SITE

Canopy Growth Acquires Jetty Extracts for $69 Million

Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) is buying Lemurian, Inc. better known as Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology, contingent upon federal permissibility of THC in the U.S. or earlier at Canopy Growth’s election, up to 100% of the outstanding capital stock of Jetty. Read more here.

Bright Green Listed on NASDAQ

Bright Green (NASDAQ: BGXX) is a cannabis company with no revenue that just began trading on the NASDAQ, despite the exchange’s insistence that it won’t list U.S. cannabis companies due to the product being federally illegal. Bright Green plans to produce cannabis for research purposes with the Drug Enforcement Agency‘s (DEA) blessing, which seems to be the reason why the NASDAQ has allowed the company to trade. It would be considered federally legal cannabis. The stock is trading at $26. Read more here.

Cresco Revenues Fall

Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF)  released its financial results for the three months ended March 31, 2022, as revenue fell from the fourth quarter’s $217 million to the first quarter’s $214 million. Cresco Labs did note that the revenue increased 20% over last year’s $178 million for the same time period. This also beat the Yahoo Finance average analyst estimate for sales of $213 million. Read more here.

GMR Women’s Leadership Awards: Ralina Shaw

Ralina is the founder of House of Tyne and on the leadership team of 4thMVMT,  a leading social impact organization based in Los Angeles with a mission to support those who have been adversely affected by onerous Cannabis laws. They do this by educating, empowering, and training those adversely affected to run/operate their BIPOC-led “Sixty Four & Hope” retail dispensaries in Los Angeles (2 recently opened locations and counting). Read more here.

 Psychedelics on the World Stage

Every year world leaders come together to discuss the global economy at the World Economic Forum’s annual gathering in Davos Switzerland. This small town in the Alps has become the place where the smartest people on the planet come together to discuss solutions to the world’s economic problems and issues. It is not uncommon for various industries to establish a meeting place for people to come together for conversations. In 2019, the Canada Cannabis House hosted a three-day event for people in the cannabis industry to introduce themselves and talk about business with people who were unfamiliar with the industry. Read more here.

 Women Creating Cannabis Brands (VIDEO)

On April 28, 2022, the Green Market Report hosted its first Women’s Summit in New York City. This panel was titled “Women Creating Cannabis Brands.” These savvy and accomplished women have created truly unique and original products and companies. Their products are unlike others in their categories. This panel explores what it takes to create a company and product that stands out in a sea of sameness. Read more here.

IN OTHER NEWS

Ayr Wellness Inc.

Ayr Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF), a leading vertically integrated U.S. multi-state cannabis operator (MSO), today announced that it has launched first sales from its Phoenix, Arizona cultivation facility. Concurrently, the company announced the launch of its national pre-roll brand, STiX Pre-Roll Co. in Arizona. Read more here.

American Green, Inc.

American Green, Inc. (ERBB:OTC) has purchased the 40,000 square foot building known as American Green’s “Cypress Chill” cannabis facility located at 2325 W. Cypress St. Phoenix, AZ. 85009.  The building sits on a 62,000 square foot site and was previously leased by ERBB in August 2021 with an option to buy. American Green has exercised its option to buy the building and now owns it. The purchase price was set at $3.75 million at the time of the signing of the lease last year. Recently, the building was professionally appraised for $5.3 million, giving American Green $1.55 million of additional equity, at the time of closing. When added to the down payment of $1.123 million, there is now a total of $2.673 million of equity in the new “Cypress Chill” cannabis grow building. Read more here.

MariMed Inc.

MariMed Inc. (OTCQX: MRMD), a leading multi-state cannabis operator focused on improving lives every day, announced today it had been awarded a provisional dispensary license by the Ohio Board of Pharmacy. MariMed won this license in the Ohio lottery process. The license allows the Company to develop a medical dispensary in Tiffin, Ohio, located south of Toledo and home to the University of Bucharest and Tiffin University. Read more here.

Ascend Wellness Holdings, Inc.

Ascend Wellness Holdings, Inc. (CSE: AAWH.U) (OTCQX: AAWH), a multi-state, vertically integrated cannabis operator focused on bettering lives through cannabis, is pleased to announce that it has closed on $36.5M of additional funding under the increase option of its existing term loan credit facility. In August 2021, the Company announced it had closed on a US$210 million Senior Secured Term Loan credit facility with Seaport Global Securities LLC as lead manager.

Steep Hill Michigan

Steep Hill is pleased to announce that the Company’s licensee partner, Steep Hill Michigan, a Cannabis Regulatory Agency (CRA) licensed medical and adult-use/recreational cannabis safety compliance testing facility, has earned ISO/IEC 17025:2017 accreditation, an International Standard recognized by governments and industry participants as the standard of excellence for the technical requirements and operational competence of a quality laboratory management system. The accreditation was validated by Perry Johnson Laboratory Accreditation (PJLA), the Michigan-based world-wide leader in ISO assessment and validation. Read more here.

First Columbia Gold Corp., Green Diamond Farm

First Columbia Gold Corp (FCGD), operating as FineCannabisGoods.com, is pleased to announce an agreement to acquire Green Diamond Farms LLC of southwest Michigan. Green Diamond Farms is currently working on licensing and setting up growing facilities in different areas of the state where permitted in partnership with FCGD. Each location should gross up to $2.5 mil year 1 and $6 mil by year 2. Read more here.


StaffMay 18, 2022
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) is buying Lemurian, Inc. better known as Jetty Extracts, a California-based producer of high-quality cannabis extracts and pioneer of clean vape technology, contingent upon federal permissibility of THC in the U.S. or earlier at Canopy Growth’s election, up to 100% of the outstanding capital stock of Jetty. 

Canopy Growth will make aggregate upfront payments in the amount of approximately $69 million payable through a combination of cash and Canopy Growth common shares, a majority of which will be Canopy Growth common shares, in exchange for approximately 75% of the equity interests in Jetty, subject to certain adjustments.

Jetty is a top 10 cannabis brand in California and a top 5 brand in the Vape Category. Backed by award-winning technology, Jetty has paved the way for the most authentic and natural vape experience available to consumers. As a leader in solventless vape and a pioneer of extraction-related intellectual property (IP), Jetty has achieved strong growth over the past two years while generating positive EBITDA amidst the highly competitive California cannabis market.
“Canopy Growth is building a house of premium cannabis brands with a focus on the core growth categories that will power the market’s path forward, now including Jetty – a pioneer of solventless vapes,” said David Klein, CEO, Canopy Growth. “There are significant opportunities for Jetty to scale at the state-level across the U.S. by leveraging Canopy’s U.S. ecosystem, and we’re actively working on plans to bring the brand to the Canadian recreational market.”    

Founded in 2013, Jetty began its operations in San Diego with a focus on craft and innovation while applying a strict adherence to compliance, fiscal responsibility, environmental concerns, and community commitment (with a little time for some surfing in between). Today, Jetty’s 65-plus employees work at the company’s 14,000 sq. ft. Oakland headquarters and various other locations throughout California. The company continues to focus on its state-of-the-art production facility, utilizing the latest technology to create industry-leading extracts including award-winning Solventless Vape, Live Resin Vape, and other products. Jetty also founded and operates The Shelter Project, a need-based program that has provided over $1 million worth of free cannabis products to cancer patients.

“Jetty has put the consumer at the heart of our focus since the outset, and we’re proud to have pioneered the cleanest vape technology on the market. This agreement between Canopy Growth and Jetty is mutually beneficial and provides long-term growth opportunities for our employees and our brand. Canopy shares our vision and will support us as we bring the highest-quality Jetty products to consumers across North America and the world. We can’t wait to be a part of what Canopy is building as we continue to define the future of cannabis and introduce more consumers to what makes Jetty products so special,” said Ron Gershoni, Co-Founder and CEO, Jetty. “Along with founding members Nate Ferguson and Rob Ferguson, we look forward to continuing to lead our team at Jetty and working alongside the team at Canopy to further expand our brand.”


StaffApril 26, 2022
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After the market closed on Tuesday, Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced that it was undertaking a series of initiatives to reduce costs and drive efficiency in order to accelerate its path to profitability.

Canopy Growth management said it expects to generate a cost of goods sold COGS savings of $30 – $50 million and reduce SG&A expenses by $70 – $100 million within 12 – 18 months. These savings are incremental to the previously announced cost savings of $150$200 million, of which the majority have already been achieved. As a result of these strategic changes, management said it expects charges between $250 – $300 million in the fourth quarter of FY2022, the majority of which will be non-cash and relate to the write-down of excess inventory balances as well as “property, plant, and equipment” impairments. Further, the company said it expects to incur between $100 – $250 million in non-cash impairment charges in Q4 FY2022, largely driven by goodwill and intangible asset impairments.

Layoffs

The company said it was going to be laying off employees as well.

“To realize profitability and power growth, we are taking critical actions to further evolve Canopy Growth into an agile organization with a clear focus on the areas where we have the greatest potential of success,” said David Klein, Canopy Growth Chief Executive Officer. “These necessary changes are being implemented to ensure the size and scale of our operations reflect current market realities and will support the long-term sustainability of our company.”

The changes were listed as follows:

  • Reducing cost of goods sold (“COGS”) in the Company’s Canadian cannabis business by lowering per-gram cultivation costs through increased cultivation-related efficiencies and facility improvements;
  • Implementing a flexible manufacturing platform inclusive of contract manufacturing for certain product formats;
  • Rightsizing indirect costs and generating efficiencies across the company’s supply chain and procurement;
  • Aligning selling, general and administrative costs (“SG&A”) with short-term business expectations by reducing third-party professional fees and office costs; and
  • Further streamlining the organization to drive process-related efficiencies.

 

All financial information in this press release is reported in Canadian dollars unless otherwise indicated.

Debra BorchardtFebruary 9, 2022
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced its financial results for the third quarter fiscal 2022 ended December 31, 2021 as revenue dropped from last year as Canadian cannabis sales fell. Canopy reported net revenue of $141 million for the third quarter of fiscal 2022, which was a decline of 8% versus the same time period in 2021. Canopy said that total global cannabis net revenue of $83 million in the quarter declined 20% over the third quarter in 2021. On a positive note, net revenue increased 7% sequentially.

Canopy also delivered a net loss of $115 million, which is a $714 million improvement versus last year. The company said this was “driven primarily by lapping material non-cash asset impairment and restructuring charges in Q3 FY2021 and Other Income totaling $34 million during Q3 FY2022 mostly attributable to non-cash fair value changes of $59 million.”

It wasn’t all disappointing news, Canopy reported that other consumer products revenue came in at $58 million which was an increase of 19% over last year. However, excluding the impact from acquired businesses, net revenue declined 17% and global cannabis net revenue declined 34% versus last year. .

CEO David Klein said, “In the third quarter we actioned to win where it matters – driving record performance in our CPG business from both BioSteel and Storz & Bickel, while beginning to stabilize our Canadian business including maintaining the #1 position in premium flower. Our continued discipline and focus are expected to fortify Canopy’s competitive positioning in Canada as we ambitiously build our U.S. CPG, CBD, and THC strategies.”

Despite the drop in sales and net loss, Canopy is still sitting on cash and short-term investments of $1.4 billion on December 31, 2021. However, this is a decrease of $0.9 billion from $2.3 billion on March 31, 2021, reflecting EBITDA losses, capital investments, and the upfront payment made as consideration for the option to acquire Wana Brands upon federal permissibility of THC in the U.S

CFO Judy Hong said, “Throughout fiscal 2022, we continued to reduce our operating expenses and capital investments. With a renewed sense of urgency, we are focused on achieving profitability in Canada by taking additional steps to simplify our business and optimize our expenses, while making strategic investments in key growth areas.”

Canadian Cannabis Problems

Canopy is really having problems with flower, which is the most in-demand form factor for cannabis. The company noted that adult-use cannabis B2B net sales dropped 23% over the last year and was mostly due to the continued insufficient supply of flower products with in-demand attributes and continued price compression, particularly in the value-priced dried flower category. “These factors were partially offset by contribution from the acquisitions of Ace Valley and Supreme Cannabis.”

Recreational B2C net sales in the quarter declined by 28% versus last year and was largely driven by increased competition from the rapid increase in third-party retail locations across provinces. Medical net revenue didn’t fare much better as those sales decreased 7% from last yearQ3 FY2021 driven primarily by higher average order sizes offset by a fewer number of orders.

European Business

In December Canopy announced plans to sell all of its interest in C3 Cannabinoid Compound Company GmbH (“C3“) to a European pharmaceutical company headquartered in Germany. C3 develops and manufactures cannabinoid-based pharmaceutical products for distribution in Germany and certain other European countries. The divestiture was completed on January 31, 2022 and the company received a cash payment of $128 million (€89 million). The Company will also be entitled to an earnout payment of up to €43 million subject to the achievement of certain milestones by C3. C3 revenue in the quarter decreased 45% year-over-year as a result of increased competition and price compression.


Debra BorchardtJanuary 19, 2022
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The Canadian Center For Policy Alternatives recently released a report titled “Another Year In Paradise – CEO Pay in 2020. The report lists a couple of cannabis company CEOs with what it determined to be outsized compensation packages. The report stated, “Canada’s 100 highest-paid CEOs got paid an average of $10.9 million in 2020, which is higher than their pay in 2019. As a result, those 100 CEOs now make, on average, 191 times more than the average worker wage in Canada.” The report also stated that variable compensation, which can be bonuses, company stock, or options rose from roughly 70% a decade ago to over 80% in the past two years. Now it seems salaries have become a less important part of CEOs’ total compensation.

The report also delved into the support many businesses received during the pandemic. It pointed out that substantial government support flowed to companies headed by some of the highest-paid CEOs in the country. 

Leading the list on the report was David Klein, CEO of Canopy Growth Corp (NASDAQ: CGC) who is listed as having a salary of C$281,715 share-based awards of C$10,075,349, option-based awards of C$33,267,017, non-equity incentive compensation of C$408,739, other compensation listed as 1,273,265 for a grand total of C$45,306,085. 

Ranking at 18 on the list Kurt Schmidt, President & CEO of  Cronos Group Inc. (NASDAQ: CRON) having a salary of C$195,859 share-based awards of C$3,187,404 option-based awards of C$9,859,488 non-equity incentive compensation C$326,811 for a total of C$13,569,562. 

Tilray (NASDAQ: TLRY)  wasn’t listed in the report, but CEO Irwin Simon has a base salary of $1.7 million according to the company’s filings. In addition, the Tilray Compensation Committee in July 2021 awarded Mr. Simon a one-time cash retention bonus of $10 million. Mr. Simon was granted 392,772 PSUs which are performance-restricted stock units. On July 27, 2021, Simon received a one-time equity grant having an aggregate value equal to $15 million. For the fiscal year 2021, the Compensation Committee determined Mr. Simon’s cash bonus to be $3,185,000, which was paid to him on August 15, 2021. This easily puts him ahead of Schmidt on the list. Tilray said the CEO ratio of pay to the average employee is 13 to 1. 

So while Simon’s total compensation may be lower than Klein’s, the inclusion of those one-time bonuses and the generous regular salary might be more lucrative.

Cannabis C-Suite

In May 2021, the CannaBiz Team released a report that stated C-suite executives in the cannabis business saw double-digit salary increases in 2021 compared with 2020. The report determined that a cannabis company’s chief executive officer’s salary rose to a median of $350,300 in 2021, up 11% from a median of $314,450 in 2020. For a chief financial officer, the median salary climbed 10% to $348,500 from $318,000 in 2020. MJ Biz looked at U.S. cannabis company CEO pay in July 2021 and found that Cresco CEO Charlie Bachtell was the highest-paid CEO of an American MSO with 2020 compensation valued at $4.5 million. Bachtell was paid a salary of $450,000 and was paid a bonus of $87,500, according to a regulatory filing. Looks relatively meager by comparison to his Canadian counterparts. 


Debra BorchardtNovember 19, 2021
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First it was Slang Worldwide this week that saw the departure of the company’s CEO Chris Driessen, along with Board Chair Peter Miller stepping down and several other board members who left. Today, Canopy Growth Corporation (NASDAQ: CGC) announced that  Executive Vice President and Chief Financial Officer Mike Lee and President and Chief Product Officer Rade Kovacevic would leave the company on December 31, 2021.

New Canopy Executives

The changes are coming shortly after the company blamed the decline in flower sales in the third quarter on an insufficient supply of flower with in-demand attributes, including higher THC, in the premium and mainstream categories as well heightened competition focused on single strain offerings in the value flower category. Canopy said that it managed to keep its number one market share in the premium flower category but conceded that it fell by 310 bps quarter over quarter. The value flower category maintained its number two market share, but that also dropped by 540 bps from the first quarter.

Canopy Growth named Judy Hong as interim Chief Financial Officer and Tara Rozalowsky as interim Chief Product Officer. In addition to serving as members of the company’s Executive Management Committee, both will report directly to CEO David Klein effective immediately. The company said it has initiated an external search for both roles and to support a seamless transition has

“These decisions reflect Management and the Board’s vision for building a best-in-class organization that is well-positioned to deliver long-term growth and shareholder value,” said David Klein, CEO, Canopy Growth. “We appreciate Mike and Rade’s contributions to advancing Canopy Growth to our position as a cannabis industry leader. Judy and Tara are established leaders who have played pivotal roles during their tenure at Canopy Growth. I am confident in their ability to execute against our strategic priorities as we accelerate our path to profitability,” added David Klein, CEO.

Hexo Corp.

HEXO Corp (NASDAQ: HEXO) announced that Sebastien St-Louis has resigned from HEXO’s Board of Directors. The company also announced that it has appointed President and CEO, Scott Cooper, as a Director to replace Sebastien St-Louis, effective yesterday.

“I would like to take this opportunity to thank Sebastien for over eight years of service on HEXO’s Board of Directors. Through his years of dedication, he has helped build HEXO into a market leader in Canada,” said Dr. Michael Munzar, Chair of the Board. “It is my pleasure to welcome HEXO’s President and CEO, Scott Cooper, to the HEXO board. Scott’s experience with Truss, Molson Coors, and several other publicly-traded consumer packaged goods companies will be instrumental to HEXO’s success as we continue to drive growth and profitability through the commercialization of advanced cannabis products and to defend our position as a market leader in Canada.”

Hexo is making the changes not long after it gave a sobering warning about upcoming convertible debt. Hexo also stated that while it enough money for ongoing working capital requirements, the current funds on hand, combined with operational cash flows,won’t be enough for the cash requirements under the Senior Secured Convertible Note, plus the investments required to continue to develop cultivation and distribution infrastructure, and the future growth plans of the company. Management said it is exploring several options to secure the necessary financing, which could include the issuance of new public or private equity or debt instruments, supplemented with operating cash inflows from operations.

22nd Century

22nd Century Group, Inc. (Nasdaq: XXII) joined the club in making big changes as it announced that Richard Fitzgerald has become the new Chief Financial Officer, effective November 15, 2021. John Franzino, the Company’s previous Chief Financial Officer, was transitioned to Chief Administrative Officer, where he will be responsible for further developing the company’s business processes and leading the company’s financial planning and analysis, operational finance, human resources, and information technology functions.


Debra BorchardtNovember 5, 2021
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) announced its financial results for the second quarter fiscal 2022 ending September 30, 2021 as total revenue fell 3% to $131 million, missing estimates by $10 million. Furthermore, Canopy noted that excluding the impact from the company’s acquired businesses, net revenue declined 13% and cannabis revenue declined 14% versus last year’s second fiscal quarter.

Flower Wilts

Canopy blamed the decline in flower sales on an insufficient supply of flower with in-demand attributes, including higher THC, in the premium and mainstream categories as well heightened competition focused on single strain offerings in the value flower category. Canopy said that it managed to keep its number one market share in the premium flower category but conceded that it fell by 310 bps quarter over quarter. The value flower category maintained its number two market share, but that also dropped by 540 bps from the first quarter. The company said it expects to bring additional flower and pre-roll products to market over the coming months including new strains across all categories with DOJA 91K, Tweed Powdered Donuts, Twd. Garlic Jelly flower shipped in the current quarter.

Canopy reported net earnings in the quarter with a loss of $16 million, which is an $80 million improvement over last year’s second quarter. Canopy said this was driven primarily by other income totaling $196 million during the quarter mostly attributable to non-cash fair value changes of $233 million.

CEO David Klein said, “In new industries where the potential is immense, progress is rarely a straight line. With a focused strategy, a foundation for growth, and our burgeoning U.S. ecosystem, Canopy is uniquely positioned to win as the industry matures.”

Storz & Bickel vaporizer revenue decreased 34% sequentially, which the company blamed on strong comparison during the year-ago period, as well as shipping restrictions and production shortages caused by global supply chain difficulties. In addition to that, recreational B2C net sales in decreased 11% sequentially, which Canopy blamed on the rapid increase in third-party retail locations across provinces.

Medical net revenue in Q2 FY2022 decreased 6% from Q2 FY2021 driven primarily by higher average order sizes offset by a fewer number of orders.

Lowered Expectations
Canopy also lowered investors’ expectations going forward. While the company said it expects revenue to pick up in the back half of the fiscal year,  it cautioned that the “pace of improvement is expected to be more modest than previously anticipated.” With the losses in market share, Canopy said that it is going to try to stabilize its market share of the Canadian recreational cannabis in the second half of the fiscal year.The company also warned that while the distribution expansion of BioSteel was expected to quicken, shipments may depend on the “timing of chain authorizations and associated shelf resets.” BioSteel is Canopy’s ready-to-drink beverages and CBD brands. “Brand awareness continues to rise, velocity is tracking in-line with expectations and feedback from distributors and retailers has been positive. BioSteel is expected to see its distribution ramp up over the balance of FY2022 and into FY2023 driven by increased listings with national and regional chain accounts.”

The Positives
On a positive note, Canopy said it has increased its vape market share by 20 bps to 8.5% and increased edibles market share by 50 bps to 8.7%, from the first quarter. The company launched a new nicotine-free, Whisl CBD vaporizer in the U.S in the quarter. Whisl is available in over 3,500 Circle K stores across the U.S. currently. whisl is already the #3 CBD vape in the U.S. per IRI data for the 4 weeks ended October 3, 2021. Canopy said that the Martha Stewart CBD remains one of the fastest-growing CBD brands across all formats and is now the #3 brand among all CBD gummies in the food, drug, and convenience-store channel with 12.4% market share, according to IRI data for the 4 weeks ended October 3, 2021. A range of new Martha Stewart CBD confectionery products has shipped in the current quarter.
Price Target Drop
Recently, Cantor Fitzgerald’s analyst Pablo Zuanic dropped his price target on the stock to C$18.50 ($14.90 ) from C$21, while maintaining a ‘Neutral’ rating. “With low expectations, we think sentiment may be driven by company commentary on the path to $250Mn in quarterly sales (almost 2x current levels), break-even EBITDA by March, and growth in the non-cannabis business,” Zuanic wrote.

 


StaffOctober 14, 2021
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Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) is buying Mountain High Products, LLC, Wana Wellness, LLC and The Cima Group, LLC (collectively, “Wana” and each, a “Wana Entity”) in a deal valued at $279 million. Like other U.S. acquisitions byCanopy Growth the deal is dependent on federal legalization in the U.S. Wana is the #1 cannabis edibles brand in North America by market share.

Today’s announcement reflects the culmination of more than a decade of hard work, dedication and vision put forth by our employees and partners, as well as an unwavering commitment to the plant and -our customers,” said Nancy Whiteman, CEO and Cofounder of Wana Brands. “We have long considered what the next phase of our growth might look like, and this deal is not only a great testament to our focus on bottom line growth and fiscal diligence, but also to the value we believe Wana can bring to Canopy and its shareholders now and in the future. We have met many partners along the way over the past 11 years, but none have felt like the best and right fit until today. We are incredibly humbled and honored to be part of what Canopy Growth is building in terms of the future of this industry.”

Wana is the leading cannabis edibles brand in North America based on market share, with the largest multi-market presence of any independent edibles brand across the U.S. gummy market, and #1 share of the Canadian gummy market. Based on Canopy Growth’s consumer research, edibles are expected to continue to serve as the primary point of entry for new consumers into the THC category and as such having a leadership position in the gummy category is critical.

“As we establish Canopy Growth as the world’s leading cannabis company, acquiring the #1 cannabis edibles brand in North America will serve to strengthen our market position in both Canada and the United States,” said David Klein, CEO, Canopy Growth. “The right to acquire Wana secures another major, direct pathway into the U.S. THC market upon federal permissibility, and in Canada we’ll be adding the top-ranked cannabinoid gummies to our industry-leading house of brands. We’re confident in the future growth of the edibles category and the tremendous opportunities with Wana.”

 


Debra BorchardtSeptember 20, 2021
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Stifel analysts W. Andrew Carter, Christopher Growe, and Matthew Smith issued a huge report September 2021 report updating investors on their outlook for the cannabis industry. The group lowered estimates and price targets on several companies. The group also noted they have a negative outlook on the Canadian cannabis industry and Canopy Growth in particular. With regards to the U.S. market, the analysts don’t believe the current administration will change the legality of the industry but believe this is actually a positive thing.

Don’t Expect U.S. Legalization

While the election of a Democratic President in the U.S. had many believing that federal reform was around the corner, Stifel doesn’t think so. The analysts said that they don’t believe this is achievable with this Congress and there is limited potential for modest reform. They wrote, “We believe federal inaction provides the leading U.S. MSO’s (multi-state operators) and our four ancillary cannabis names an extended window for value creation.” The group went on to say, “While this has reduced interest in the sector, we remain enthusiastic about the category’s prospects while federal inaction extends the window for value creation for GrowGeneration, Hydrofarm, Scotts MiracleGro, and WM Technology.”

While Stifel doesn’t think Federal legalization is happening anytime soon, the report was mostly positive for U.S. cannabis companies. The analysts wrote, “Year-to-date, we estimate the North American regulated category grew 45%. The U.S. state-licensed market should benefit from a number of new state systems coming online over the next few years: Connecticut, Montana, New Jersey, New Mexico, New York, South Dakota, and Virginia. Once all of these systems are implemented, the percentage of the U.S. population living in a state with an adult use cannabis commercial system will increase to 44.8%, up from 31% today. We estimate the U.S. state-licensed market will grow to nearly $35 billion in 2023 sales, suggesting 21% CAGR aided by robust underlying growth and new systems coming online.”

Canadian Bummer

Stifel noted that in 2018, Canadian cannabis companies drove investor enthusiasm as the first fully legal developed market. Unfortunately, the market has not met the expectations and competition has been stronger than anticipated. For example, there has been a 100% increase in active licenses since 2020. Some areas in Canada have hit saturation, while others have no access at all. The report wrote, “Expanding legal access is likely to be difficult, with 30% of the addressable market in areas where the Provinces own and operate all retail stores, while municipal restrictions prohibit stores in some areas (most notably Mississauga, Ontario, with over 700,000 residents). For the retail operators, the Canadian market is extremely competitive in some areas, with the average Ontario retailer facing 20 stores within a two-mile radius.”

With regards to the U.S. listed Canadian producers, Stifel said that it thinks the costs of capturing category growth are increasing. To be fair, sales continue to grow with Canadian adult-use sales expected to reach $7 billion by 2023. Recovery from pandemic closures and a continuation to pull consumers out of the illicit market all bode well for the industry. However, Stifel tempered the positive comments with issues regarding regulatory changes and underserved markets.

“We caution that the difficult Canadian market will likely serve as a headwind for profitably participating in the market’s growth as there is a long lead time before increased consumption will be able to drive shipments higher,” wrote the analysts. “Retailer inventories continued their decline from 1Q21, but they remain elevated, with Alberta, Ontario, and Saskatchewan all ahead of levels at the end of 4Q20.” Three companies now own essentially 35% of the Canadian market – Canopy Growth, Tilray, and Hexo.

Stifel had some tough love for Canopy Growth. The analysts wrote, “We believe Canopy is actively eroding its position within an inflexible commitment to Canadian market leadership despite the significant resources needed to achieve this endeavor with no consistent evidence validating the ability to achieve market leadership.” Stifel is keeping its Sell rating for Canopy and lowering the price target to C$15, which was lately trading at C$17.70 while the U.S. stock was lately selling at $13. The analysts also pointed out that since the company fired its founder Bruce Linton, results have been underwhelming. They think a personnel change is needed.

Stifel has a Hold rating on Hexo and lowered its price target to C$2.85 even though revenue is growing. The company cited a complex capital structure for Hexo that could weigh on investor interest. Stifel thinks Tilray is best positioned for market leadership, but lowered the price target to C$11.50 from C$14 and maintained the Hold rating.

Hydroponic Concerns

The analysts said they were taking a cautious approach towards the hydroponic category, which they cited for slowing growth due to oversupply issues. However, weather, fire, and construction delays could solve that problem. The report said, “Hydroponics benefits from the irrational deployment of capital toward plant touching opportunities with a myriad of funded “CocaCola of cannabis” pitches. But the hydroponics subsector has been largely insulated from this dynamic. Fresh category skepticism is likely to keep this insulation intact, and we believe each company should sport a stronger position for executing additional M&A. Of the three, we favor GrowGeneration with the dramatic underperformance relative to peers in the face of better positioning to contend with and capitalize on more challenging category dynamics.”

Stifel Updates

The analysts made the following changes:

“We are lowering our near-term estimates for Aurora Cannabis (ACB.CN), Canopy Growth (WEED.CN), Cronos Group, Hydrofarm (HYFM), the Scotts Miracle-Gro Company (SMG), and Tilray (TLRY). Our revisions stem from our more cautious approach to hydroponics category growth (HYFM, SMG) and uninspiring Canadian POS trends (ACB, WEED, TLRY). We are
increasing our estimate slightly for GrowGeneration (GRWG) for the latest acquisitions (two stores), and we are updating our HEXO estimates for the addition of Redecan and 48North. Our ratings remain intact, but we are lowering our target prices for Aurora Cannabis, Canopy Growth, Cronos Group, HEXO, Hydrofarm, ScottsMiracle-Gro, and Tilray. We recently initiated coverage of WM Technology (MAPS) with a Buy rating and $19 target price. While our WM Technology outlook remains intact, we approach our F4Q21 estimates with incremental caution, given slowing category growth, particularly in California, which represents over 60% of the company’s sales.”

 

 

 

 


StaffJuly 28, 2021
Houseplant-scaled.jpg?fit=1200%2C675&ssl=1

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Seth Rogen’s cannabis company Houseplant and Canopy Growth Corporation (NASDAQ: CGC) have decided to end their relationship after three years. It won’t affect the company’s U.S. business and the product is expected to remain on some shelves through September 2021. The relationship between Houseplant and Canopy started in 2018, well ahead of Canadian legalization. The Canadian cannabis market has evolved substantially since those days, and the parties believe the time is right for the Houseplant brand to develop independently while Canopy advances its focus on wholly-owned brands for the Canadian market.

“The recent launch of Houseplant in the United States has given us a clear benchmark for what Houseplant stands for, and how we plan to bring the brand to life globally,” says Michael Mohr, Co-Founder and CEO, Houseplant. “While our collaboration with the Canopy team has been fruitful and we continue to hold similar views on the opportunities ahead, we believe the time is right for us to focus on Houseplant independently.”

During these three years, Houseplant has become a popular consumer brand in Canada and is currently a top 10 brand in the premium cannabis market in Ontario. Beverages are a highlight of the brand’s success, with Houseplant Grapefruit notably attaining the top-selling cannabis beverage spot in Canada (measured by units sold) in its launch year. More than one million cans of Houseplant beverages were sold in Canada within the last year.  Houseplant launched a line of premium homewares and cannabis products in the United States in March 2021 and has quickly become a cultural and industry leader.

Canada is where it all started – for us as people, and for the brand,” says Houseplant Co-Founder Seth Rogen. “This is not an exit from the Canadian market, but a chance for us to evolve the brand.” Houseplant plans to relaunch in the Canadian market in the future with products more consistent with its US offerings.

“We’re proud of our collaboration with Houseplant. Together, we’ve delivered high quality and innovative products to Canadian consumers and played a critical role in defining the premium cannabis category in Canada,” said Rade Kovacevic, President and Chief Product Officer, Canopy Growth. “As we move forward, Canopy will advance our focus on our wholly-owned brands for the Canadian market and we wish the Houseplant team the best in their future endeavors.”

 

 

 


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