Canopy Did the Right Thing

Hilary Kramer

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

After a great couple of weeks, cannabis stocks took a big step back on news that giant Canopy Growth Corp. (NASDAQ:CGC) is scaling back its Canadian operations.

A nervous market took the announcement as a negative factor. I think it’s a great decision for the industry, if not for Canopy itself.

Management wants the operation to be profitable. Evidently, running so many cannabis-growing facilities across Canada doesn’t fit into that agenda.

Cutting 220 jobs and closing several farms will save the company about $200 million a year. What I like about this is the way it will also remove incremental supply from an already glutted market.

Big Cannabis has a supply problem. Too many companies tried to grow their way to economies of scale and flooded the world with cheap plant product.

Canopy has given up on that infinite growth plan. Consumer demand just isn’t there. Management sees that now.

I wish all the cultivators would follow suit. Until they do, I’d rather own the small retail and next-generation cannabis stocks than the giants.

We’re in the green in my IPO Edge. I can’t wait to add new names. Canopy and company don’t qualify . . . they’re too big, and frankly, they’re old news.

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