As Canopy Growth Loses $282.7 Million, Constellation Brand’s Headache Continues
Shares of Canopy Growth (NYSE: CGC) fell 14% Thursday after the Canadian marijuana company reported another quarter of big losses. The stock is a lesson in fundamentals. It was boosted by overspeculation by those trying to get in on the burgeoning marijuana industry. But the big losses associated with trying to build production of scale, along with developing sales in a new marketplace, are showing up in earnings. Shares have fallen roughly 65% over the past six months.
Obviously, speculation is part of the game when it comes to these companies, but getting too involved can really burn you. I credit much of the unrealistic rise in Canopy's stock to the billions invested by Constellation Brands (NYSE: STZ). When the alcohol conglomerate did that, it signaled to markets that Canopy was the real deal -- and it put a ton of cash into Canopy's pockets. This started a chain reaction in which the frenzy of legalization, the prospect of a large corporate partner, and the insane increases in revenue drove shares far higher than they should have been. Canopy's initial investments began in October of 2017. Constellation's second, and far more significant, investment of USD$4 billion came in August of 2018. Throughout all of this, the stock went on a run from around $10 a share to over $50. Obviously the stock has struggled to maintain that momentum over the course of the past year.
When your stock is trading at levels that should be backed by earnings that don't yet exist, the downside potential is always there. Fiscal second-quarter losses of 374.6 million Canadian dollars ($282.7 million) were nowhere near as painful as the CA$1.2 billion loss reported in fiscal Q1, but that was still a 13% increase in losses year over year. The money bleed has done a whopper to the balance sheet. Total equity on the balance sheet has fallen by roughly 22.3% year over year to CA$5.62 billion.
Source Fool.com
