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2 years ago
Just a little more than 7 months has gone by since Canopy Growth Corp. (NYSE: CGC) made the radical decision to oust its founder and CEO, Bruce Linton. It came with great sacrifice; causing an even greater pullback in the stock’s price; as Linton did not go quietly. It was evident that the board was highly concerned about by the spending and the lack of frugality by the previous regime. In addition, this news came after the cash injection by Constellation Brands; at a time when the industry was getting saturated and margins were getting squeezed. The result for CGC‘s stock was a -66% decline between July 2nd to November 18th; which had a devasting effect on the entire sector as investors fled the industry leaders. The big dogs, Tilray, Aurora and Cronos; all suffered similar losses, as short sellers jumped upon these stocks that were already: 1) in a downtrend and 2) heavily shorted.
Since hitting the lows in November 2019, CGC has made a basing pattern and the naming of ex-Constellation board member, David Klein, as its new CEO. This has added extra credibility to the company, and assurance that STZ has a long-term perspective for the development of the company.
On Friday the 14th Feb Canopy released earnings which surprised analysts and resulted in some very positive price action as the stock jumped as high as 20%.
The company reported a net loss of C$124.2 million ($93.8 million), or 35 cents a share, vs. analysts’ expectations of a loss of 52 cents. Meanwhile, revenue rose 49% to C$123.76 million ($93.46 million), topping estimates of C$105 million.
“In Q3 we executed across Canada, in our international markets and in our strategic acquisitions to drive revenue growth. We have a lot of work to do. We are eager to capitalize on the opportunity to create an unassailable position through a tight focus on the consumer and on critical markets” said David Klein, CGC’s new CEO.
Canopy announced that the had an estimated 22% share of the Canadian market driven by premium and value based dried flower and pre rolled joints. B2B sales increased 8%, while retail increased 16% while the company was also able to lower operating expenses by 14%, this is many ways is the most encouraging factor to take from earnings. The addition of the new CEO has obviously addressed the spending issues and the company is now in the hands of grown-ups.
Overall, we believe that CGC is the strongest of the Cannabis stocks; with the best balance sheet and company structure, and with the backing of Constellation Brands. In the days and weeks to come, it is vital for the bulls to stand their ground and maybe work toward some sort of a short squeeze for the entire sector.
Above $24 looks to a nice area to long the stock, with $28 per share as a medium-term target, before notable Fibonacci resistance. It is imperative that you keep in mind the fragility of the industry to Marijuana regulatory news flow; as CGC is as vulnerable as others to mass selling events: so if you are long, then keep stop losses in play.