Canopy reporting tomorrow. What to watch for? Dry flower increase. Last Q was sizeable. Headset data shows them scattered amongst top 10. I think they are up.
B2C, largely retail store sales, should continue to increase. BUT with retail peers at a 30-35% GM, they need cultivation and Other Revenue margins to be 5-10% greater than their “mythical 40% GM” to get an all in GM of 40%.
Unabsorbed overhead is killing GM at a $28 million drag last Q after $18 million the prior Q. The shuttering of facility was announced in late Q. I would expect this to be a drag for a few more Q’s or more. Here were the drags:
(i) start-up costs associated with our indoor cultivation facility in Newfoundland and our gummy production facility in Smiths Falls; and (ii) under-utilized capacity associated with our chocolate factory and vape production facilities in Smiths Falls.
Newfoundland facility is being shuttered. I don’t see any gummies yet. And edibles/chocolates are not lighting the sector on fire. I think they likely had an uptick in vapes
Last Q, EBITDA improved by $7.5 million to -$86 million. A similar improvement would be welcome.
BioSteel is losing $3.5 million a Q, with last 6 month losses greater than first 6 months of ownership. Does the loss shrink?
GoBlue
I have no where to post this as WSB is a disaster. Based on Blue’s thoughts yesterday about the STZ and CGC relationship. I started to look at the CGC option chain.
The Feb 19 35P had massive volume with 24,000 contracts traded with no hedging exposure anywhere else along the strikes, it appears the O/I is now at 12,000. The April 35P had above average volume.
The initial outlay was roughly 1.2 million on the February puts.
I initiated a massive position for my portfolio size on the April 35P. We’ll see how it goes.
The metrics make Canopy uninvestable at this valuation. I don’t see how they survive another 9 months without debt, a raise, or STZ stepping in. I’m sure they will use those tools, but a 16.5 billion dollar company is absurd. When their parent company is worth 40 billion.
Response by GoBlue
STZ has until Nov 2023 but do they add 50% to present $10 billion in term debt (of which $5 billion was for CGC) or $5 billion to a $14 billion equity box?
Being “in the money” is not the only item at play.
Think of where they thought they would be at the decision point (which was pushed back 18 months) and where they are now.
GoBlue
I completely agree with your thoughts and I don’t understand by any narrative that they will be exercising their warrants. I believe Canopy is a stand-alone entity with a parent company. Extending the warrants simply gives the benefit of time.
Response by GoBlue
Restructure is what I believe will happen. Move goal posts again.