Commodities and Gold

Cannabis Corner: Upping the Ante

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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Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. The Financial Times describes Ms. Kramer as “A one-woman financial investment powerhouse” and The Economist distinguishes her as “one of the best-known investors in America”. Ms. Kramer is often quoted in publications such as the Wall Street Journal, New York Post, Bloomberg, and Reuters. She is a frequent guest commentator on CNBC, CBS, Fox News and Bloomberg, providing investment insight and economic analysis. Ms. Kramer was an analyst and investment banker at Morgan Stanley and Lehman Brothers. Ms. Kramer founded and ran a long-short hedge fund and has been chief investment officer overseeing debt and equity portfolios. Since 2010, Ms. Kramer’s financial publications have provided stock analysis and investment advice to her subscribers. Her products include GameChangers, Value Authority, High Octane Trader, Triple-Digit Trader, 2-Day Trader, IPO Edge and Inner Circle. Ms. Kramer, a Certified Fraud Examiner, has also testified as an expert in investment suitability, risk management, compliance, executive compensation, and corporate governance. Ms. Kramer received her MBA from the Wharton School at the University of Pennsylvania and her BA with honors from Wellesley College. Ms. Kramer has provided testimony regarding investment policy to the U.S. Senate and is a frequent speaker on the markets, portfolio management and securities fraud and compliance. Ms. Kramer is also the author of “Ahead of the Curve” (Simon & Schuster 2007) and “The Little Book of Big Profits from Small Stocks” (Wiley 2012).