Even though Bruce Linton is gone, Canopy Growth is still a company you want to own forever…
Last week, I promised that I would have a full report about Bruce Linton leaving Canopy Growth Corp. (NYSE: CGC). Now that we know his co-CEO, Mark Zekulin, is also scheduled to depart, I want to share some thoughts with you.
I admire Bruce, so I want to be clear about that.
However, this change in management will ultimately be good for investors. That’s because Canopy is still operating as a new company, and it needs to get to the next level.
For a startup, a shakeup in management is pretty common when the company goes public. What’s less common is when that “startup” has been operating for six years, with the largest market share in its primary market and a multi-billion dollar market cap.
And that’s what happened here.
The CGC stock price has traded down slightly since the news of Bruce leaving first broke, but I’m not worried.
What to Know About Canopy Moving Forward
Before I share the three ways to play Canopy, I wanted to take a moment to discuss a little bit more about this shakeup so you will know what’s important to focus on and what is just noise.
That’s because, even as a current leader in the cannabis market, there’s still a lot of work to be done.
Even though Canopy has been operating for six years, it has only been selling legal cannabis to recreational consumers for nine months. That essentially makes it a startup. Second, that market share is in Canada, which is a tiny fraction of the global cannabis market.
Finally, one of the reasons it has a multi-billion dollar market cap, is that Constellation Brands (NYSE: STZ) gave Canopy a war chest of $4 billion.
After a disappointing start to the Canadian recreational market – and I don’t care what Bruce or anyone else says, results so far have been disappointing – Constellation lost patience and decided to make a change.
Company founders are rarely the people to take a company to its next level. We look at examples like Bill Gates and Warren Buffett and think it’s normal, but it’s much more common for company founders to leave voluntarily or get fired even before the company they founded goes public.
And it’s not just in business.
In 2014, the Golden State Warriors fired head coach Mark Jackson. The owners acknowledged that Jackson improved the team, but the owners also thought that someone new could take Golden State to the next level. They were right.
Jackson’s successor, first-year coach Steve Kerr, won the 2015 NBA Championship.
It was Golden State’s first championship in 40 years, and the team has won two more championships since then, creating a dynasty.
And that’s the situation we have here. The management team at Constellation – which is the best in the world in any industry – will be picking the team that will get Canopy to the next level of success. I’m comfortable with that, and I’m perplexed by those who are not.
I still think Canopy will be the dominant player in the global cannabis market, and that’s why I refer to it as the “Microsoft of Cannabis.” At the very least, there’s a possibility that the new CEO will make better use of Canopy’s cash hoard than Bruce.
Constellation’s management wasn’t pleased to see a company with nearly $4 billion in cash issue so many shares for acquisitions and for employee compensation.
Now that you know the whole situation with Canopy, let’s take a look at the three ways to profit from it.
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How to Play Canopy
Option 1: Invest in Constellation Brands
Those who want to take on the least amount of risk can simply buy Constellation stock. I’ve recommended that stock to you before, and I believe that with a top-notch management team, a rising dividend, and a large stake in Canopy, Constellation will be a stock to retire on.
You get big exposure to cannabis through Constellation, and you also get industry-leading brands in beer, wine, and spirits.
Option 2: Buy More Shares of Canopy Growth
You can always buy more shares of Canopy.
With the downturn in the overall cannabis market over the past couple of months, you can buy the stock even cheaper now.
Owning Canopy stock at a big discount to where Constellation has options to increase its stake is a good place to be.
Option 3: Buy Acreage Stock
Finally, for those investors willing to take on a little more risk, you can buy shares of Acreage Holdings (CSE: ACRG, OTC: ACRGF). Canopy is buying Acreage, of course, but the market is valuing Acreage shares as if it has big doubts about when the transaction might close or even if it will close at all.
Canopy shares have declined since the Acreage deal was announced in April of this year, but Acreage shares have declined even more. That means that if you are confident that the Canopy/Acreage deal will close – and I am confident – then you can “own” Canopy shares at a big discount by buying Acreage shares for around $15.10 per share.
The Canopy shares you’d receive for Acreage would be valued at around $23.35 as of this writing, and that’s a 55% profit.
Again, this strategy is a little riskier, but it offers a potential quick double-digit gain.
Executive Director, National Institute for Cannabis Investors
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27 responses to “3 Ways to Make Money from Canopy Growth”
July 09 2019