Canopy Growth (“Canopy”) (TSX: WEED) (NYSE: CGC), like other cannabis companies, suffered a setback in the first quarter of 2020 due to COVID-19. However, its stock price soars over 80% since the middle of March, which relates to its recent moves.
In April, Canopy announced to shut down its operations in South Africa and Lesotho, shutter facilities in Columbia, Saskatchewan in Canada and New York in America. Meantime, it signed a regional supply deal with Clever Leaves who will supply Canopy with extracted goods produced in Colombia.
It is obvious that Canopy is removing its investment from cannabis cultivation. Then where does it put its focus on instead? The answer is cannabis derivatives and cannabis-related products such as vaping devices.
On April 20, it rolled out the first line of CBD topicals under its brand First & Free in US. On March 16, Tweed, another one of Canopy’s brands, began to ship its first cannabis-infused beverage product throughout Canada. In late January, it launched its line-up of vape devices, supplied by ALD Group Limited, a top one-stop vape solution provider who also serves the U.S. top 1st THC pod vape brand-STIIIZY, as well as dozens of nicotine vaping brands and tobacco giants, such as British American Tobacco, R.J. Reynolds Tobacco and ITC Limited. Clearly, the cooperation with ALD is correct and successful. So far, the total sale of Canopy’s vape batteries has taken up to 70% market share in Canada.
The strategy of Canopy’s moves is based on what David Klein, the CEO of Canopy, said, “to define a very visible path to profitability and positive cash flow”. Thus, it shrinks investments on cultivation which need relatively longer time to make profit, and shifts to an “asset light” model, focusing on cannabis products and its derivatives, as well as vaping devices, which is more profitable, and is good for cash flow.
Correct strategy helps Canopy gain a significant growth. Will Canopy achieve the final aim of 2020? Let’s keep in focus its following moves.