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One of the biggest names in the cannabis sector, Canopy Growth (NASDAQ:CGC), took a pounding to close out the month of June, ending last week down about 20%.
The fall was triggered by the Canadian cannabis grower’s announcement that it would exchange debt for a combination of stock and cash.
According to the terms of the plan, the company would exchange $255.4 million of debt for shares and $3 million in cash. It would also see one of the marijuana producer’s biggest shareholders, US-based Constellation Brands (NYSE:STZ), acquire between 21.9 million and 30.7 million of stock in the weed company at a price of $2.50 to $3.50 per share. Constellation currently holds a 36% stake in Canopy Growth. The terms of the latest move should see that stake grow to roughly 40%.
The news prompted a number of analysts to lower their target price for Canopy Growth, a move that will, in turn, undoubtedly force more investors to abandon the faltering cannabis sector.
Analyst Alan Brochstein of New Cannabis Ventures said:
“At this point, the Canopy Growth stock price seems awfully low, but we don't bet the stock is a great performer until it begins to generate a profit.”
Brochstein continued:
“While we are more optimistic due to the pending resolution of the large convertible debt outstanding, we aren't especially bullish on the name.”
He pointed to two recent purchases made by Canopy—the acquisition of Wana Brands and Jetty Extracts—as the focus of concern.
“There is a chance that the company could be out the purchase price and never able to actually close the deals,” Brochstein wrote in a note.
“Canopy Growth has spent more than $366 million in cash and stock for the acquisitions of the majority of these companies and could ultimately face a write-down.”
Shares of Canopy Growth closed last Friday in the US markets at $2.81. The stock has fallen almost 68% so far this year, continuing its disastrous 95% drop since early last year.