In a statement which may help pacify the market, Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) has released a statement downplaying the potential of outdoor cannabis grow in their product mix. This splashes cold water on the potentially margin-pressuring role outdoor cannabis grow could exert on the low-end recreational supply and extraction markets.
Canopy Growth Corp released a two-pronged press release this morning, both congratulating Health Canada’s framework on cannabis regulation and commenting on outdoor grow. Addressing the former, the company proclaimed that “the regulations, upon an initial review, present an exhaustive and sophisticated system for production and marketing, and are in-line with the Company’s expectations.” Hence, the company appears outwardly satisfied with Bill C-45 framework heading into October.
Canopy Growth’s more salient points pertained to outdoor cannabis grow, however. While the company welcomed the introduction of the micro-cultivator and micro-processor licence categories, they cautioned that significant challenges remained. Among them: operational concerns in maintaining actual physical facility, quality control and production quality. These were the similar concerns the Midas Letter highlighted a couple days ago.
The net result is that while they didn’t slam the door on entering the outdoor grow market in the future, Canopy Growth does not foresee non-hemp Canadian outdoor production of cannabis as a medium-term viable alternative to its current production platform. In all likelihood, other Big Cannabis operators will likely draw similar conclusions, thus diminishing the impact and race to grow outdoor cannabis for the foreseeable future.
By extension, if outdoor grow is confined to the micro-cultivator realm of the market, it may simply become a craft grow novelty. Such a scenario should not overly impact the top line of the mid/premium recreational or medical segments of the market. It would be similar to the small, but material effect craft brewers have exerted on big commercial brewers. It’s not exactly a net positive, but it’s perhaps not the game changer some are expecting. Big Cannabis will adapt their operating models to compensate for shifting market realities.
These welcome views from the sector leader—combined with a deeply oversold condition—has fostered a strong rebound today. Canopy Growth is currently higher by $2.08 to $39.01/share (↑5.63%). The Midas Letter Canadian Cannabis Index is currently higher by ↑4.07%.
Canopy Growth CEO Bruce Linton talks about its prime competitor, Aurora Cannabis Inc.
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