CGC

Publicly traded companies mentioned herein: Aurora Cannabis Inc (ACB CN; ACBFF), Canopy Growth Corp (CGC; WEED CN), Constellation Brands Inc (STZ), Green Organic Dutchman Holdings Ltd/The (TGOD CN, TGODF), Tilray Inc (TLRY)

Highlights

The presenter is bearish on the outlook for the publicly traded cannabis producers (cultivators) due to a “massive” supply/demand imbalance looking out to 2020 that could drive the price of flower materially lower. In his opinion, Canopy (CGC; WEED CN) has a “halo" around it because of the Constellation Brands investment and promise that international expansion appears to hold; however, it is difficult to forecast a meaningful profit number for the company, even assuming 250k kilograms sold per year. And, given the hype around Tilray’s IPO and other producers such as Aurora and Green Organic Dutchman, he believes the upside risk for a more institutionalized company like Canopy that must execute its business plan could be lower. Big picture, looking out a year or two, assuming an average price point of C$4/gram (~55% below the ASP per gram of medicinal marijuana in FQ1 ‘19) on 250k kgs/year results in total annual sales of C$1B. If the presenter’s model is accurate, this would result in just ~C$100MM of EBITDA (versus a ~C$15B market cap today). As supply comes online and dwarfs demand (by as much as 3x) and prices decline, Canopy’s shares could see 50% - 60% downside from current levels (~$52 for CGC).