Canopy: Shares Fall as It Uses Massively Dilutive Equity Issuance to Deal with Maturities

On July 14, no-moat Canopy Growth WEED announced a series of transactions to deal with the CAD 468 million due this fiscal year. As we had expected, the company is using a mix of cash and massively dilutive equity issuances to deal with the debt that is set to mature. Our fair value estimates of $0.80 and CAD 0.90 per share remain unchanged. Though this sits above the current share price, we reiterate our Extreme Uncertainty Rating, largely reflecting the risk of value destruction.

The announced transactions will increase the share count by about a third on a fully diluted basis and use about CAD 93 million of cash to reduce the debt burden. Given the significant dilution, shares are down nearly 40% intraday.

Canopy had about CAD 783 million in cash and securities at the end of fiscal 2023 with about CAD 788 million due in fiscal 2026. The company remains unprofitable on an EBITDA basis, so risk of further dilution is likely. We see better risk-adjusted upside in U.S. multistate operators no-moat Curaleaf and no-moat Green Thumb, which are much closer to positive free cash flow than Canopy.