Barclays Investment bank held its annual jamboree for the great and the good in the consumer products industry last week.
On the roster were many familiar names: P&G, J&J, Kraft Heinz, Nestlé, Coca Cola and more. All the usual suspects.
However one name intrigued me, Canopy Growth. I hadn’t heard of it.
Founded in 2013, Canopy Growth markets medical and recreational marijuana in the Canadian market. Besides Canada it’s also focused on the US, where its betting there’ll be legislative reform in favour of marketing marijuana, and Germany.
It’s listed on both the Toronto and NYSE exchanges and has annual revenue C$607m and over 3,200 employees.
The company’s website boasts an array of marijuana brands including Tweed, 7 Acres, Blissco, Hiway; Dog Treats; flavoured waters; a sleep solution branded ‘Dream Gummies’ and if that wasn’t enough they also do vapes.
What surprised me was how little money the company makes. In fact it’s heavily in the red, and losses have increased despite a rise in revenue.
The issue starts with their gross margin which averages just 15%. Compare that to Philip Morris who make 68% or BAT who make 83%
Canopy Growth’s stock price once traded at over C$60 but in recent days it’s down at C$19.
At the Barclay’s conference the CEO talked about the importance of consumer insights but perhaps the issue is a lack of focus, too many brands. There were apparently over 100 innovation projects on the go, but it seems many have been shelved as cash burn accelerated.
Perhaps the market isn’t as big as they imagined? Penetration of legal marijuana in Canada is rising but it’s still below 10% of the population.
Investors who hang on will be betting legislators in America and Germany vote in their favour.
I’ll end with a few disclaimers: I’m not an investor in Canopy Growth, nor am I doing any work the company. Oh, and I don’t smoke either.