Canopy Growth: BioSteel Funding Ceased To Stem Cash Burn, but Likely Hurts Potential Sale Price

On Sept. 14, no-moat Canopy Growth announced that it had immediately ceased funding of BioSteel Sports Nutrition, which has entered bankruptcy protection. This announcement followed comments made during Canopy’s fiscal first-quarter earnings release last month in which it stated that it was pursuing strategic options, including the potential sale, of BioSteel. Most likely, the decision to put it into bankruptcy protection signals that there was insufficient buyer interest. Moreover, although Canopy’s actions on BioSteel will stem its cash burn, we also think it is likely to hurt the valuation of any potential sale. Thus, we don’t expect a major change to our fair value estimates of $0.80 and CAD 0.90.