- While Canopy Growth (TSE:WEED) and Constellation Brands (NYSE: STZ) are generally considered a solid investment opportunity, smaller caps from the US, like Veritas Farms Inc (OTC: VFRM) demonstrates how a more specialized approach can pay off.
For investors who want to profit from the cannabis industry, the choice between Canopy Growth and Constellation Brands is a little confusing. Since the brewer holds about 40% of the Canadian cannabis grower, the decision between the two is essentially whether to invest directly in cannabis or in a company that actually makes alcohol and has recently made large-scale cannabis purchases.
Canopy has more pronounced highs and lows, but both stocks are now trading below the level of August 15, 2018, when Constellation announced that it had increased its stake in Canopy to 38%. But where are they now, and which stock has more potential to reward shareholders in the near future?
The high is dropping
Cannabis stocks have largely declined since Canada legalized the free sale just over a year ago. Great hopes and high valuations have been met with hard realities, with a whole range of factors being at the root of the problems. Canopy was no exception – the stock has lost 57% of its value since October 17, 2018.
Nevertheless, Canopy continues to show strong growth in its latest earnings report. Net sales rose 249% to $68.3 million (CA$90.4 million) as sales of dried cannabis in the legal market in Canada rose 94% quarter-on-quarter, demonstrating that Canopy knows how to quickly play the home market.
Other indicators also point to rapid growth, including 183% sequential growth in kilograms. However, with an operating loss of $123 million (CA$162.7 million), the company is still clearly in the high-growth investment phase.
Canopy also divested Co-CEO Bruce Linton at the beginning of the year, who has been responsible for most of the company’s development. Among other things, he created brand partnerships and secured the deal with Constellation. His departure was a sign that the losses had exceeded the ability of some investors, including Constellation, to cope.
Canopy has long been the largest cannabis company in terms of market capitalization, but faces the same basic challenges as many of its competitors – in the end, profits have to be made. Even though the Tweed brand is well known, Canopy, like the rest of the industry, faces risks. While the company’s valuation now seems more reasonable, money is likely to be burned in the foreseeable future. It can be difficult for Canopy to recover because of the upset mood. Good would be an impulse, for example progress in the legalization of cannabis in the USA.
Something seems to be wrong
Like Canopy, Constellation was once a big winner for investors. Stock prices rose nearly 1,000% between 2012 and 2018 after the company acquired the distribution rights for Modelo Group beers in the US. With clever marketing and an expansion that included the Corona brand, sales and profits increased.
The recent strategy was not quite as successful. The huge deal with Canopy, which cost about $4 billion, has been a failure so far, and the acquisition of Ballast Point to better position Craft Beer has led to write-downs. The company also divested several low-cost wine brands and intends to increase its presence in the premium segment.
Constellation’s beer business continued to show solid growth in the second quarter. Overall growth was flat, partly because many wine brands were sold. Sales increased only 2% to $2.34 billion and adjusted operating income increased 1% to $792 million.
Earnings per share are also expected to decline slightly this year, from $9.28 in 2018 to between $9 and $9.20.
Given that the beer business, which accounts for the majority of sales, remains in good shape, Constellation should be better positioned once the realignment of the Wine and Spirits segment is complete, although the problems with Canopy are likely to continue for some time.
A more transparent approach is boosting US-based Veritas Farms’ business
In the neighboring US, situation looks brighter for some cannabis companies that developed their brand around honesty and transparency. Veritas Farms Inc (OTC:VFRM) is the best example in this regard. The company has experienced consistent growth since was founded, in 2015. In Q2 2019 Veritas generated more than $2.9 million in total revenue and that is a 500% increase since Q2 2018. The company’s gross profits reached $1,523,413 and thanks to great results, managed to reduce the liabilities by over $1.3 million.
Veritas Farms operates a state-of-the-art 140-acre industrial hemp farm and manufacturing based in Pueblo, Colorado. The company produces high quality full spectrum Hemp oil products, including lotions, tinctures, oil salves and vegan capsules. They also make use of a huge variety of different cannabis strains including the fire og strain.
Veritas Farms controls its own supply chain and has an impressive retail network of over 5000 stores across the US and some leading online marketplaces. It is also looking to break into the cannabis business consulting sector, as in the last two weeks, the transparent approach of Veritas assured three new groundbreaking partnerships, with Winn-Dixie and BI-LO supermarkets to supply CBD to 152 South Eastern stores, and with Bi-Mart for the cannabis-based pet products.
There are other companies making waves in the cannabis industry too. For example, some businesses now deliver cannabis directly to your door, making it easier than ever for cannabis users to enjoy cannabis products. You can Learn More at https://cannabis.ninja.
Furthermore, it cannot be denied that the ways in which people choose to enjoy cannabis are also increasing. For example, although smoking rolled cannabis cigarettes still remains hugely popular, dicro glass pipes are also experiencing a surge in popularity. The marijuana market is therefore having to adjust to these trends.
Even though Canopy Growth and Constellation Brands are big names in the cannabis business, Veritas Farms shows investors that smaller caps are lucrative alternatives when it comes to betting their money on the nascent cannabis industry.
