Where Will Canopy Growth Be in 5 Years?

Smiths Falls, Ontario-based Canopy Growth (NYSE:CGC) is, in many ways, the epicenter of the legal marijuana industry. Despite the steady decline in its share price since the legalization of adult-use recreational marijuana in Canada last October, the company is still the only borderline large-cap company in the industry, as well as the market share leader in terms of annual sales. Canopy also sports the richest tie-up with a noncannabis company through its roughly $5 billion CAD equity investment from alcoholic beverage giant Constellation Brands (NYSE:STZ).

Even so, Canopy has been going through a rough patch lately…

Mounting quarterly losses, less-than-stellar recreational and medical marijuana sales, and a number of costly acquisitions ultimately culminated in the departureof longtime co-CEO Bruce Linton last week. While Linton initially stated that the decision was mutually agreed upon between him and the board of directors, he later admitted during a rather candid interview on CNBC’s Squawk Box that he was forced out the door — presumably at Constellation’s behest. The company will reportedly begin searching for a new CEO immediately. And as part of this management churn, co-CEO Mark Zekulin stated that he also plans to step aside, once a replacement is found.

As Canopy begins the transition to a new management team, it’s an opportune time to consider where this top pot company might end up in the next five years. So, without further ado, here’s a look at where Canopy seems to be headed.

The next step

Now that Canopy is a large cap company, it’s arguably time for the company to start acting like one and that means improving its bottom-line in a big way. In the most recent quarter, the pot titan posted a staggering operating net loss of 174.4 million CAD, which was well above Wall Street’s consensus estimate for the three-month period. Therefore, the first order of business for Canopy’s next CEO will almost certainly be to rein in expenses and put the company on a path toward sustained profitability.

As things stand now, Wall Street has the company losing money all the way out until fiscal year 2022 — a trend that clearly isn’t sitting well with its equity partner Constellation. Underscoring this point, HEXO and OrganiGram Holdings — two much smaller Canadian pot cultivators and distributors — are both on track to turn a profit as soon as next year. Investors can therefore probably bank on Canopy hiring a cost-conscious CEO as its next leader. In other words, Canopy’s days of plowing huge amounts of capital into highly speculative deals — such as the proposed buyout of Acreage Holdings that will only go through if the U.S. ends federal prohibition on marijuana — are likely over.

Canopy’s aggressive business development activities should…

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