We’ve got updates on Canopy Growth, the recession indicator trends, and the status of banks in the industry…
I’ve talked to you before about how Canopy Growth Corp. (CGC) sacked Bruce Linton, which was a surprise throughout the industry.
Well, after being ousted from Canopy, Bruce is a busy man.
First, he’s now serving as Executive Chairman at Gage Growth Co., a smaller, privately held company.
He’s also announced an investment in SLANG Worldwide (CSE: SLNG, OTC: SLGWF). Bruce purchased 347,222 units at $.72 each for $250,000. The units consist of one share and one warrant to buy a share at $.89.
Finally, Bruce became Special Advisor to Better Choice Company, a pet health and wellness firm. Better Choice had no hesitations in stating it paid to get Bruce on the board due to his “deep passion for animal health.”
Bruce is continuing to make bold, but wise moves.
Canopy Growth Update
George C. asks: “What is your latest prognosis for CGC?”
Hi George, thanks for the question.
Canopy needs a CEO, but it’s extremely well positioned for the day it gets one.
The shares will probably languish until they announce that CEO, but the right CEO might make for a big rally immediately afterward, which is why we’re not selling now and buying it back later.
I’m looking for the company to appoint an executive from the consumer products industry, and I’m looking for a first-day commitment from the new CEO to produce results now – not five years in the future.
And Constellation, which is in control of the process by virtue of their board seats at Canopy, knows it.
Recession Indicator Trends
Sandy asks: “Hi Greg, just wanted to hear your insights on the latest recession indicator trends. I am keenly aware, based on the Great Recession in 2008, what this can do to the value of my stock portfolio. I would love to hear some insight from you, please. Thank you!”
It’s a great question, Sandy. I too lived through the huge bear market of 2008.
So, I know the devastation that a recession can inflict on a stock portfolio.
Looking at the Great Recession of 2008 specifically, there were places to hide and still be relatively safe.
The classic defensive stocks, like food and beverage companies and retailers for low-income consumers, performed relatively well. A few companies even managed to excel during that time.
Companies like WalMart, Ross Stores, Dollar Tree, and Anheuser Busch InBev (NYSE: BUD) were all up during the year, many by double digits. Anheuser was even acquired that year.
Looking to cannabis stocks, it’s not at all clear what will happen.
On the one hand, it’s a sector that has a lot of growth priced into the shares, which is never a good sign entering a recession.
On the other hand, cannabis will eventually be seen as a defensive sector – no one expects demand for cannabis to change much during difficult economic times, just as alcohol companies and fast food tend to see stable demand.
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There’s a third factor at play that doesn’t affect other kinds of companies.
Recessions often see drops in government revenues, and governments aren’t prepared for that – you can’t downsize a school the way you can an auto plant. The government’s “customers” don’t go away just because of difficult economic times.
So we might see some local governments become more permissive toward cannabis companies as they look to increase the tax revenues produced by these businesses. That could be good for the industry – we just don’t know yet, because there’s never been a cannabis industry like this and a recession at the same time.
Finally, classic studies of what makes a “defensive” stock or stock sector assume a certain level of institutional ownership. The cannabis business is one that is held almost exclusively by retail stockholders. And retail stockholders are less predictable than insurance companies, pension funds, and mutual funds.
All of that is a long way of saying that I don’t know just what will happen, but I know what to look for when the time comes.
We’ll have to make a new assessment in the event a recession were to occur.
Banks in the Industry
Mike asks: “Will more banks be getting into the cannabis industry? Seems like it would be a smart thing to do.”
They will, Mike, but probably not as big lenders, at least not yet.
Banks love the day-to-day transaction business that cannabis firms do.
For example, business checking accounts, cash management, credit card relationships, and wire transfers are all nice profit centers for banks. So, they’d love to have a new, fast growing industry of $12 billion to offer their services to.
That’s the thought behind moves like the SAFE Banking Act, which would clarify that banks can do business with cannabis firms without regulatory barriers.
But lending and the like? Banks are still governed by the rules following the Great Recession I talked about above.
And they are still pretty risk averse. They like to hold government-backed mortgages, treasuries, and pieces of huge loans to established companies.
Lending to growing businesses still hasn’t fully recovered. Since most of the cannabis industry is still experiencing losses, banks are unlikely to be lenders. We may see some mortgages, some working capital loans, and the like.
But most lending will still be done by specialty finance companies.
In this sense, cannabis will be like other growing businesses that are funding their growth partially with operating losses.
Biotechnology companies find it difficult to raise debt capital from banks, for example.
Executive Director, National Institute for Cannabis Investors
3 responses to “Former Canopy CEO Bruce Linton Is Still in the Market”
September 28 2019