Calling the Winner

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

Last year turned ugly for Big Weed investors as bad news spiraled across the industry in a classic demonstration of contagion out of control. Every headline fed back on all the stocks because Wall Street couldn’t tell the players apart.

But here we are with a clear winner emerging. Investors seem to have figured out that Canopy Growth Corp. (NYSE: CGC) is different enough to stand up to the tides of sentiment.

All you need to do is look at the stocks over the last few months. CGC has rebounded 45 percent off its Nov. 17 low, outperforming runner-up rival CannTrust Holdings Inc. (NYSE: CTST) by 10 percentage points and leaving everything else in the dust.

Quite a few of these stocks never caught the bounce at all. Tilray Inc. (NASDAQ: TLRY) has dropped another 21 percent over that time period and Aurora Cannabis Inc. (NYSE: ACB) is down 25 percent.

The performance gap here is staggering. Over the summer, all of these stocks moved in eerie unison. Now, there suddenly are winners and losers.

That’s all a factor of CGC lining up the right management team to align the business with corporate parent Constellation Brands Inc. (NYSE:STZ), which has a 35 percent stake in the company and a vested interest in its success.

Dropping Constellation’s chief financial officer into the CEO chair ensures that Canopy makes the best moves to protect its parent’s investment. That’s a great thing for shareholders.

After all, Constellation just wrote down another $534 million in the value of its Canopy stock. Management on both sides will do whatever it takes to stop the bleeding.

It has worked so far. But there’s a lot of ground left to recover. The last six months have cut the overall value of CGC in half.

At least it’s bouncing now. TLRY and ACB are still falling knives. I don’t see them hitting the floor until they communicate exactly what sets them apart from the little players in the industry who imploded for very good reasons over the summer.

Size isn’t good enough. Winners here will have compelling products and differentiated business models to drive them. Losers will race to the bottom.

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