Why anybody continues to invest in this sector is beyond me. But for whatever reason, over the past 7 trading days, Canopy Growth has skyrocketed – yes, this is over a 50% surge up:
I’m not short the stock, but those that are are obviously hurting. It is a heavily shorted stock, with about 40 million shares short on the US side and 11 million on the Canadian side, with a cost of borrow of around 25% (assuming you can actually get shares to borrow).
While I’m not the type to gamble on these stocks, my gut instinct says that it might Tilray these short sellers before crashing again. In March 2019, they reported CAD$4.5 billion in cash and marketable securities on the balance sheet, and at the end of December 2019, it was about C$2.3 billion, an impressive cash burn trajectory. While Constellation Brands did exercise C$245 million in warrants on May 1st, I’m sure Canopy would love another opportunity to raise cash again!
I’m guessing all of these Robinhood and Wealthsimple investors have been happily buying shares. Who knows, they might have the last high!
It will be interesting to see how good these management teams are at raising cash to pay off their convertible debt due in the next 12-24 months. It’s hard to find a weed convert that isn’t trading like junk.
There was one issuer (not a lot of choice here, so let’s say “the less crappier one”) that I took a solid look at, but when running my crystal ball forward, I asked myself if I wanted to own this company when they convert into stock at 95% of TSX, and that kept me away from buying.
I think the destiny of most, if not all of these producers will be to get integrated in with the existing big label brands (alcoholic ones). They’re not viable stand-alone.