The chief executive of Canopy Growth Corp. (WEED.TO) is opening up about the company’s plans for the massive $5 billion investment from beverage giant Constellation Brands, suggesting as much as $1 billion could be earmarked for strategic acquisitions.
Speaking on a conference call with analysts following the release of second-quarter results, chairman and co-CEO Bruce Linton said Canopy is mulling the purchase of “a number of technologies.”
“We have a roster of elements we might wish to acquire. None of which are producers in Canada,” Linton said before the opening bells on Wednesday. “Depending on the mix of cash and shares, (it) would probably nibble up close to a billion dollars.”
Canopy’s blockbuster deal with the maker of Corona beer announced on Aug. 15 triggered a sector-wide rally that continued in large part until the days leading up to Canadian recreational legalization on Oct. 17. Many investors saw Constellation’s sizeable toehold in cannabis as a sign the nascent industry is maturing.
Linton said Canopy has also been spending on a now “finalized and designed” bottling line for cannabis-infused beverages. He confirmed site preparation is underway as Canada prepares regulations around alternative product formats, such as drinks and edibles.
“We think beverages will be a format of product that will make sense under the regulations of Canada,” he said. “There is no certainty, but we think that could be ready for Q4 calendar 2019.”
Canopy is also setting aside cash for a speedy move into the U.S. market if the pro-hemp farm bill is passed by Congress. The legislation would legalize production of non-psychoactive cannabidiol (CBD) from hemp.
“We want to have some dry powder ready to go. Rather than reacting and looking for capital and structuring that, we will be instantly in,” Linton said.
He went on to emphasize the company’s focus is also turning to medical sales in Europe. Canopy has previously announced plans to spend more than 100 million euros (about $150 million) to expand production in the European Union over the next two years.
Linton added that Canopy has “unannounced activities tied up in some of the emerging locations,” and suggested investors should expect some of the company plans to be kept under wraps until complete.
“What we found over the years is what we announced is a good idea, and everybody tries to follow it,” he said. “We’re executing before announcing, and it will become evident what we are doing.”
Linton’s comments came as the Smiths Falls, Ont.-based Canopy reported a $330.6 million net loss in its second quarter that amounted to $1.52 per share, compared with a loss of $1.6 million in the same period last year. The company said revenue amounted to $23.3 million in the quarter ended Sept. 30, well short of the $59.1 million average analyst expectation.
“I don’t want to say analysts were wrong on the target number, but I think they were early on the quarter,” Linton said.
Toronto-listed Canopy shares fell 11.18 per cent to $45.20 as of 12:59 p.m. ET during Wednesday’s session.
The company reported that its products account for 30 per cent of in-stock inventory across Canada’s retail stores. The company said it sold 2,197 kilograms of pot at an average price of $9.87 a gram in the quarter, up from 2,020 kilograms at $7.99 a year earlier.
Chief Financial Officer Tim Saunders said the higher average price was primarily due to a change in the product mix, including increased sales of oils and gel caps, higher-priced strains, and sales in Germany.
Linton said he expects the company’s revenue to improve in future quarters.
“It is the first time in our history that I’m aware of where we actually had a slowdown,” he said. “I think it was more of a distraction than a pattern.”