Canopy Growth Stock Doesn’t Need a Split Right Now

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CGC Stock Split in 2018?

It’s been a strange month for Canopy Growth Corp (NYSE:CGC), not in terms of performance, but rather in terms of the news spotlight. The star of the marijuana industry has been flying under the radar lately as Tilray Inc (NASDAQ:TLRY) sucks up all the oxygen.

It’s easy to forget that the Constellation Brands, Inc. (NYSE:STZ) mega-investment that sparked an industry-wide stock market rally was centered on Canopy Growth. Now Canopy is back in the headlines as investors ask if a CGC stock split is on the way.

First, let’s examine where the idea of a Canopy stock split came from.

On July 31, Canopy Growth announced that shareholders had approved a share split of 3-to-1 or 2-to-1, which could be implemented by the board at any time (or ignored completely). (Source: “Canopy Growth Corporation Announces Results of Special Shareholder Meeting,” Canopy Growth Corp, July 31, 2018.)

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This gave the board a lot of flexibility and made nailing down a possible CGC stock split date difficult.

So while the idea of a CGC stock split met shareholders’ approval in a vote, there’s no certainty that one is on the way.

While I’m not sure that a split will hurt the company, frankly I don’t think a Canopy stock split is necessary.

I understand there was some trepidation among investors as Tilray stock seemed to be the new big thing in the marijuana industry, jumping by dozens of percentage points in a few days—even surpassing Canopy Growth stock as the highest-valued marijuana stock in the world.

But the volatility of TLRY stock eventually came full circle, seeing massive declines in its value in the past few days. Meanwhile, CGC stock regained its title as the biggest marijuana stock by market cap.

Chart courtesy of StockCharts.com

Which leads us to what I see Canopy Growth’s role being within the marijuana market: a strong, steady, long-term play.

Volatility is flashy and exciting, certainly, but for investors looking to get into the cannabis industry long-term, there is simply no better option than Canopy Growth stock.

In order to help cultivate that image, Canopy Growth doesn’t need to make “swing for the fences”-type plays. Instead, investors would be better served by the company racking up a string of weekly stock price gains.

These gains don’t have to be flashy, but a steady jump of three to five percent per week—on top of the massive spikes likely to be generated by Canadian marijuana legalization—is more than enough to make Canopy Growth stock a great opportunity.

While a CGC stock split would be one way to wrestle back control of the headlines—at least for a little while—ultimately, it’s not needed at this point.

Not to mention that, at around $50.00 a share, Canopy Growth is hardly the most expensive marijuana stock. Considering what investors are willing to pay for TLRY stock, CGC still has more than enough room to grow before it needs to consider a stock split.

Canopy Growth Corp Financials

Another good reason for a delay to the Canopy stock split is the company’s most recent financial report.

Canopy Growth saw first-quarter revenue of CA$25.9 million, which was a 14% increase from the previous quarter and a 63% increase from the previous year. (Source: “Canopy Growth Corporation Reports First Quarter Fiscal 2019 Financial Results,” Cision, August 14, 2018.)

Another big metric worth mentioning is the average selling price per gram, hitting CA$8.94, up from CA$8.43 last quarter and CA$7.96 last year. This number helps track profit-per-gram production, making it one of the stronger metrics when comparing to rival companies. Seeing strong growth here is critical.

Canopy Growth stock has also netted multi-year supply agreements in Canada, with annualized delivery requirements of over 67,000 kilograms

Bruce Linton, chairman and co-CEO, said the following:

With our unparalleled success in Canada and Europe, Spectrum Cannabis’ expanding global operational footprint now covering 11 countries, our active regulatory and global market development efforts, as well as approvals to proceed with the first of many planned clinical trials of cannabis-based medical therapies for both humans and animals, our leadership position in international medical cannabis markets continues to strengthen.

(Source: Ibid.)

The company also took its investment arm public on the TSX Venture Exchange. The investment platform, Canopy Rivers Corporation (TSXV:RIV), began trading via a reverse takeover. RIV stock is currently trading at more than CA$6.00.

“We’re really trying to make this smart money that goes global,” said Linton, acting CEO of Canopy Rivers. “The scouting has been pretty active.” (Source: “Canopy Venture Gyrates in Trading Debut as Cannabis Shares Churn,” Bloomberg, September 19, 2018.)

Canopy Rivers will work with companies that are looking for financial or operating support.

Of the 11 investments made by the company over the past year—running the gamut from licensed marijuana producers to media platforms—10 were in Canada and one was in Italy.

Couple these developments with a Canopy Growth capital increase via the $3.8-billion Constellation Brands investment, and you have a company that is in a very commanding position on the marijuana stock market.

Analyst Take

While a Canopy stock split would by no means be calamitous, it is simply unnecessary at this time.

Canopy Growth stock is already in a strong position, and I don’t think a CGC stock split would serve to push share prices significantly higher.