A Real Frankenstein Monster.....Is what we have here......and what this company has turned into & become. And that's saying ALOT. Not even speaking about those long, convoluted, totally comlpicated earning reports they release and have been releasing for the past few years, including this most recent one which is NO exception. This Q2 report was just as hard to grasp, frustrasting to read & get through as its predacessors were, and i assume it will be the same for those poor IRS/Revenue Canada Tax specialists who have this misfortune to get stuck with this file. What a literal, utter, complicated, pruposely done ....MESS!
And the only question i have here is the following, why such a complicated & convoluted report for a simple WEED operation? And i'll answer my own question by saying the following. Canopy become a Frakenstein amd those earning reports are so complex and difficult to understand for two or three reasons. And you have to go back to the past, the beginning to understand why. About a decade ago, at it's inception, Canopy was probably a decent project, but risky endeavor created by a bunch of crazy hippies who were all over themselves and probably didnt quite know wth they were getting into. Their mind set back then was probably, "WHOA, this is probably the greatest opprotunity to exploit the legalization (fianally!!) of Cannabis & make a fortune!". Un fortunately, it didn quite turn out that way, becasue of many factors......sooooo....
So.......They had to improvise, be crreative and take risks. So in my mind, what ended up happening, is that every decision they took over the years, was like a 12 wheeler Mac truck hitting the company (if you can imagine the company being represented & starting off as a fully healthy, normal human being here) head on & doing some major damage BUT not killing it. And over those years, as it was continuously being hit, with severe damage & xonsequences, with every decision they took, while being operateed on by the multitude of different Frakenstein Ceo' & excutives, replacing or fixing body parts time passed. Until you get what we have here. A REAL Frankenstein monster, with a severe case of Humpty Dumpty Syndrome.
Soooo....i hope this "colorful" & detailed description FULLY explains this delicate, crazy situation and WTH is going on here. Now with that said, what was good & what was bad in the report. Was there really anything good in there, any bright spots for s/h? Well, yes & NO, because at one point, because of the crazy complexity of this report, just how badly convoluted & mess up it was due to all the technicalities .....i gave up reading any further. But what i did read, was exactly great or too encouraging.......but i'm NOT a s/h ......so i really don't have any stakes in the game and really don't care. But for those that are, especially those long standing, long term, stubborn & dedicated supporters of the company.......you MAY want to take a peek and see! Because it will be quite relevant for you in the end.
So let's start off with the GOOD stuff, the postive stuff, to give s/h some hope! First off Sales & GOGS! As it was the case the previous qtr for Canopy, and many of it's peers, it seems the FINALLY they have managed to stabilize & FIX their Cogs and actually become profitable on the end. And Canopy wasn't the only one. Both Aurora, Cronos and many others reported the same exact thing for their ER's when it came to Sales & GOGS. So one Gold Star for Canopy for that rather big achievement!
Secondly, their DEBT LOAD. As expected, with all the divestitures, writeoff/writedowns, asset sales & closures, re-financings & debt conversions...it resulted in the company reducing their massive debt from about 1,3B to ~$700M. These reasons are also paritally WHY this ER was so hard to decipher & complicated. This too was also a long awaited & big achievment as well for Canopy, BUT it came at an extreme cost for Canopy s/h ......which i will get into later on. So you can give Canopy another Gold Star for this performance!
So that's about it for the positives that i could see. Now, for what wasn't too great in the report of the BIG negatives folks should note, are the following. So let's start off with earning & profitability here. So even though they were able to fix the COGS situation, and become somewhat profitable on the end, the problem here for Canopy & ALL it's peers is this. After you include the overhead epenses & all the cost to actually run the operation, they still are bleeding massive amounts of money each Qtr. For Canopy after this ER, its to the tune of about ~70M per Qtr. Which in the long term, is NOT actually a good thing for s/h. Because how long can this keep going on before they cannot anymore....financialy?
Another BIG problem now is their cash position. In the past, at one point, Canopy had about over 1B of cash & liquid investments they could count on to get them through these tough times & ANY liquidity issues they had. Now, there are NO more liquid investments to speak of, they've all been consumed and their cash position is barely ~$200M. And this is due in big part because of the recent debt reduction measures and them bleeding RED bigtime each & every qtr for years. So now they only have ~$200M left and THAT will not last long at all, especially if they have no more investments to liquidate AND are bleeding ~$70M per qtr. So by MY estimations, they have at best one or two qtrs' left before they run out of money to fund the operation. Which of course creates more diluative issues for s/h in the coming months.
Other notables? The paper loss for this Qtr might have been a HUGE ~$350M due to the "expected" writeoffs, writedowns & all the impairment charges BUT the more important figures are the $70M bleed each qtr, which needs to be fixes ASAP and the low cash position which also NEEDS to be fixed somehow..... pronto. And latter factor might be in conjunction with another item that wasn't EVEN mentioned in the ER or MD&A. AT ALL!!! And that's the situation or any update with the Consolidation of shares they pruposed, voted on & passed just recently. And i'll assume they didnt mention this little line item BECUASE there was a lot of heavy baggage already saturating this ER and they probably didnt want to scare off investors or their already deeply depressed s/h either.
So what's the final word here? Is this a buy, hold or total SELL? As you all know by now, you KNOW my feelings toards this company & the sector in general. So THAT hasn't changed one bit even with this report........actually this ER made thingds even more clear where this, meaning Canopy, and many others like them are headed. The BIG factor or game changer here is legislation....and has ALWAYS been legislation since the VERY beginning. And i do not see that changing anytime soon in the good UsOfA, especialy in the state congress is right now.
Canada has been a total dud from the start, and don;t believe ANY operation can be proftiable there with their ludicruously high socialist tax system. The Canadians & Canadian Gov't saw the Cannabis indsutry as anoter potential money well they could plunder for their crazy socialist agendas and i dont see that changing anytime soon. And besides the Black market, which is not only VERY profitable & flourishing right now, will continue to be a major problem & serious competitor for the legal operators. And the latter just cannot compete on the same level as those BM operators, especially in a high taxed arena like Canada. The only ones that win in sytstem such as those ones in Canada, are those who need welfare, the criminals and the useless & incompetent.......
My advice? For now stay FAR away from Canopy stock as you can. If you're still dumb enough to be holding on for one reason or another, then i strongly suggest you sell it even now, as i don't see what could possibly help the stock in the short term or for you to rexoup any monies lost. And in the longer term, there isn't anything on the horizon that will help it either, at least not until AFTER the 2024 elections and they need to fix some srious issues over that time as well to survive. So ill go right ahead and predict that the stock will most likely revisit those all time lows, whether it will make a new low is another question, but imho there's a very good probability to at least revist those summer lows. So i'll assume this will trade between those lows and 0.50 for the next few months until they figure out their next move. Which imho, is the issue with the consolidation of share capital, just how bad & when it will be, for which they failed to mention or intentionally did not in this ER.
That's it for now, a long read indeed and definitely NOT for the twitter crowd or those with short attention span syndrome. But i do hope this "enlightening" commentary does help "some" of you make better investment decisions in the future.
GLTA