Cannabis Corner: Upping the Ante

Hilary Kramer

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

Canopy Growth Corp. (NYSE:CGC) provided this week’s cannabis shock by shutting down massive greenhouses and laying off 500 people. We can argue about the strategy, but the real losers here are Canopy’s weaker rivals.

Remember, Canopy has $4.5 billion in cash. While pulling the plug on 3 million square feet of licensed production space will slow the company’s growth curve, there’s no concern that it will run out of money before it achieves sustainable profitability.

I’m not sure I can say that about Aurora Cannabis Corp. (NYSE:ACB) or Tilray Inc. (NASDAQ:TLRY) right now.

Aurora has $315 million in cash and might burn $300 million of it on its current trajectory. That’s not a big margin of error.

Tilray’s math is even less secure. With $97 million on the balance sheet, it might need to spend $126 million before it breaks even.

Any attempts to match Canopy by eliminating excess capacity only make the numbers more precarious. You can’t boost sales or build market share if you’re scaling back production.

But ultimately the industry needs to scale back production. Whether Aurora and Tilray will be here for the long run remains to be seen.

I’m not looking for them to break even before 2023 at the earliest. That’s a long time to wait.

Meanwhile, the field is wide open. The most interesting names will make it into my IPO Edge portfolio and we’ll reap the rewards of their innovation over time.

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