Rise

Canopy Growth's surprise earnings hint at a cannabis turnaround

Tuesday, February 18, 2020 by Snacks

Cue the "high" jokes... Canopy Growth, Earth's biggest cannabis company, whipped up a surprise Friday: Stronger-than-expected revenues and a smaller-than-expected loss. Sales were up 62% from last quarter, and operating expenses were down 14%. That combo forms a soothing CBD balm on the bruised cannabis industry:

  • Canada's green wave: In October 2018, recreational weed was legalized nationwide in Canada, making Amsterdam feel Puritan.
  • The Willy-Wonka-moment investor dream: By early 2019, Aurora Cannabis, Tilray, and Canopy rocketed to multi-billion dollar valuations — everyone wanted to own a piece of the legal cannabis factory, which was expected to boom.
  • The buzzkill reality: Consumer demand didn't meet those sky-high expectations — and enthusiastic cannabis co's found they'd over-produced. Didn't help that the US legalization trend (11 states so far for recreational pot) seems to have stalled.
  • The popped bubble: Those top Canadian pot stocks started 2020 down by ~60% from the highs they reached just a year before — Tilray's fallen nearly 90%.

Aaaand exhale... Canopy's strong earnings lifted its own stock 13% on Friday. Then it passed the fun to the right — pot peers Aurora and Tilray both jumped almost 8%, and so did smaller cannabis companies in the US and Canada.

THE TAKEAWAY

Is this the end of the dip?... Despite the bubble-hype, cannabis can still sit back and enjoy some trends in its favor: It's seen as a safer alternative to opioids, US states have legalized, and CBD-infused-everything is killing social stigma. Young industries just need time to mature, hash out their issues, and self-select leaders. But every cannabis company is different — Canopy rival Aurora just reported an almost $1B loss over just 3 months.

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