QUARTERLY CONSIDERATIONSI read over the news release, and by all accounts, the numbers are not good. It looks like for the most part the market anticipated this, (certainly more than the Clowns on the board), as the net effect was essentially nothing to the share price.
Within the quarterly report, what is truly eye-popping is the cash burn. Put bluntly, that kind of burn can NOT continue. Canopy continues to try and "right the ship" from the Bruce days, and I think they are making progress here overall, but the risk here to shareholders is dillution via a share offering to raise much-needed cash. While the shorts certainly anticipated (correctly) the lousy numbers, it is this cash-burn/dillution issue that I think keeps them circling smelling blood, and continuing to add to the short position. It's a reasonable bet I would say, as the offering will certainly be at a significant discount to the current price level in order to have it subscribed.
Additionally, Canopy is caught between a rock and a hard place here. They need to spend the money to make the necessary progress, but the cash-burn required to do that is going to be costly to shareholder value. I really don't think they have any option here other than to trudge forward, and I do think shareholders will ultimately win. But shareholders would be naive to think the road between here and the win is going to be smooth. To the contrary, it's going to be bumpy, filled with some definite potholes, and a longer ride than anyone would have ever anticipated.
It's pretty clear that Canopy was betting on quicker U.S. legalization, and that bet has not paid off. There, obviously, is the missing cash flow. Hindsight is always 20/20. I think it was a reasonable bet at the time. Now, there is definite risk with their strategy. If it happens, Canopy will be in a strong position. If it doesn't, then they are in real trouble, essentially "all dressed up with no place to go."
And it's not even just a yes/no question. It's a "yes/no/how long will it take" question. "Yes", and Canopy wins. "No", its a Canopy disaster. "Yes, but much longer" puts the cash-burn issue front and centre, so at that point it becomes a race against the clock. To use an analogy, it's like breathing with a scuba tank. You've got half an hour left in the tank. Well all is good if you surface before you run out, but if you run out, it's not going to be a good story. And bringing you a new tank an hour after you've run out really doesn't matter.
While I have no position short or long, and don't want any postion at present, overall I still think the shorts have the upper hand. We'll see if that dillution happens, and personally, at this point with their cash-burn, I don't know how it can't happen. If/when it does, the shorts will win again. At this point, I see no reason or rush for them to cover.