Canopy Growth’s Partnership With Constellation Brands Is Bearing Fruit

It is no secret the cannabis industry has tanked lately, and even Canopy Growth (NYSE:CGC), the largest pot company in the world by market cap, has not escaped this apocalypse. There are several reasons Canopy and its peers have performed so badly, and the most important might be the fact that the Canadian authorities have been too slow to issue retail licenses…

As a result, Canopy and its competitors have not been able to supply the market with as much of their products as they had hoped, with sales from illegal sources meeting the demand that legal channels are unable to meet. Still, there’s hope that Canopy will turn things around eventually, and one of the company’s most important weapons in its quest to conquer the cannabis market is its partnership with Constellation Brands (NYSE:STZ). As it turns out, this partnership is finally starting to bear fruit.

Canopy unveils its portfolio of derivative products

The legalization of cannabis derivative products in Canada (otherwise known as cannabis legalization 2.0) such as vapes, edibles, and cannabis-infused drinks officially happened on Oct. 17. The products are set to hit the shelves in legally licensed retail stores sometime this month.In anticipation of that big event, Canopy unveiled the first derivative products it will bring to market, including vaping products, cannabis-infused chocolate, and cannabis-infused beverages.

The company’s chocolate products, developed in collaboration with chocolate maker Hummingbird Chocolate, will include several chocolate bars such as Tokyo Smoke Pause, a dark milk chocolate product containing 2 mg of tetrahydrocannabinol (THC) in each square and negligible amounts of cannabidiol (CBD). Canopy’s vape products include a lineup of vape pens and their accompanying cartridges and batteries. According to the company, its vape products “exceed safety regulations,” and follow a similar design (dubbed “510 threaded”) as one of the most popular such device used in established markets such as California and Colorado.

Lastly, Canopy’s initial lineup of cannabis-infused beverages will be non-alcoholic and contain a liquid developed thanks to a proprietary process that extracts a clear liquid from cannabis leaves. This lineup will include Tweed RTD (ready to drink), a canned drink with three flavor options each containing 2 mg of THC. Canopy’s cannabis-infused chocolate and drinks should be available in early January 2020, while its vape products should be available in late January.

In its press release, Canopy said, “the Company wishes to thank its partner, Constellation Brands, for providing expertise and support in constructing and operating the world-class facility, from building design to equipment selection to staffing requirements.”

Canopy’s partnership with Constellation Brands was a good move for the pot grower for two major reasons. First, Canopy acquired the cash to pursue its growth efforts. During its latest reported quarter — the second quarter of its fiscal year 2020 — the company had a little over 1.1 billion Canadian dollars ($834 million), which is more than almost any of its competitors. Note that Canopy spent quite a bit of money to get its portfolio of derivative products ready. During the six months period that ended on Sept. 30, the company’s sales and marketing expenses were about 109 million Canadian dollars, an 86% year over year increase, while its research and development expenses were a little over CA$20 million, a whopping 650% increase compared to the year-ago period.

In both cases, Canopy pointed to the development of its derivative products, as well as marketing effort to raise awareness about these products, as one of the main reasons why these expenses skyrocketed.  Second, Canopy is set to benefit from Constellation Brands’ expertise as a stable, profitable company that also happens to be a major player in alcoholic beverages. Clearly, both of these factors already played an important role for Canopy during the preparation preceding the announcement of its portfolio of derivative products.

It still has a long way to go

Despite this new development, Canopy still has a lot to do before getting back into the good graces of investors. Shares have lost more than 60% of their value since April, and its most recent financial results, released on Nov. 14, weren’t very good. In particular, net revenue declined by about 15% sequentially…

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