Jan 15, 2019

Canopy's stock drop 'kicks me in the butt' to focus on institutional investors: Linton

Bruce Linton: 'No interest in buying Canadian cannabis assets'


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Canopy Growth Corp.’s (WEED.TO) recent stock plunge at the end of last year motivated the pot producer to focus on winning the support of institutional investors to help stabilize its shares, according to the company’s chairman and co-chief executive.

“I want buyers who are looking at this not as something to buy in the morning and sell in the afternoon,” said Bruce Linton in an interview with BNN Bloomberg on Tuesday.

“What you want to do is rotate up the percentage owned by institutions so that the people who want to buy and sell are a small portion of the company so we have a stable base that has more torque to move up.”

Canopy Growth’s shares lost almost half their value between Oct. 17, when recreational cannabis was legalized in Canada, and the end of last year. Since the beginning of 2019, however, its shares have surged 60 per cent as investors reacted warmly to Canopy’s move to focus on the U.S. CBD market.

The post-legalization share price erosion last year “kicks me in the butt to keep working at more institutional investors,” Linton added.

Canopy Growth’s focus on the U.S. CBD market came into sharper focus on Monday when the company announced it has been granted a licence by New York state to process and produce hemp.

The company said it will spend as much as US$150 million to establish a Hemp Industrial Park in its New York operations and will be capable of producing an unspecified amount of hemp extract on an annual basis.

The investment also serves as Canopy Growth’s official entry into the U.S. market after pledging to refrain from entering the country given that cannabis remains illegal at the federal level. Industrial hemp, best known as a close cousin of the cannabis plant, was recently legalized in the U.S. with the passing of the 2018 Farm Bill.  

“This … lays down the track in terms of infrastructure necessary to process cannabis. If and when it becomes federally legal for that, it gives us a very strong position,” Linton said.

GMP Securities Analyst Martin Landry said in a research note published on Tuesday that Canopy Growth could make CBD-based products available across the United States as early as next year.

Landry, who boosted his price target on Canopy Growth to $70 from $50 and maintains a “buy” rating on the stock, added that the company’s relationship with lead investor Constellation Brands Inc. should provide it with strong “distribution reach to accelerate market penetration.”

Linton added that his company isn’t likely to engage in similar branding or joint venture partnerships that some of Canopy Growth’s peers have recently announced in order to protect the company’s gross margins. On Tuesday, Tilray Inc. announced a 10-year partnership with Authentic Brands Group to develop and sell co-branded consumer cannabis products where legally permitted.

“We look at everything; but, over time, margins will be what people measure us on,” Linton said.

“We’re a bit difficult to deal with because I’m not looking for joint ventures … I’m not looking for margin sharing, I’m looking for domination through research and owning what we create.”

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day