Sometimes everyone will immediately understand the reason for an urgent “sell” call, like if the company is having “headline-news” kinds of problems, another dead quarter, or it’s a serial top decliner on whatever exchange. People “get it,” and they sell accordingly.

Other times, a sell recommendation is controversial – you give the rec, and people look at you like you’ve got two heads. You get pushback.

I’ll tell you right off the bat: This is one of those calls. In fact, people are still buying this stock left and right, and I’d bet plenty of investors would push back here, but this is a recommendation you ignore at your peril.

So you won’t get this out there in the mainstream, but sooner or later, this story will go “big,” and investors will be clamoring to sell. If you decide to wait it out, you’ll likely realize a much lower price for having stuck around…

Let These Shares Go for Whatever You Can Get

I can easily see why this call would be considered controversial. This company was, and, according to some, still is, one of the brightest stars in the cannabis sector.

There was a $4 billion cash boost from the beverage giant behind Corona, SVEDKA, and Robert Mondavi. There were brand partnerships with A-list celebrities like Martha Stewart and Drake. The CEO became one of the world’s very first legitimate marijuana millionaires.

It had an unmatched global footprint; it was the most successful cannabis company in the world.

Had… Was… Just two reasons why Canopy Growth Corp. (NASDAQ: CGC) should be on investors’ chopping blocks this morning.

It’s still one of the most popular stocks on Robinhood right now, but make no mistake, it’s all downhill from here.

The stock has peaked, and those highs aren’t coming back anytime soon – if ever. The $4 billion investment it received from Constellation Brands Inc. (NYSE: STZ) made positive headlines all over, including right here; I was as excited as anyone else at the news.

The investment, which represented a 38% stake in Canopy, was seen as the right move at the right time. That money was supposed to enable Canopy to seize and hang onto a permanent leadership position in the cannabis sector. More than that, Constellation’s investment in Canopy was seen as mainstream recognition that, yes, cannabis is a force to be reckoned with in the market.

That much is still true today, but let’s look at what happened with that $4 billion investment…

Canopy Made Misstep After Blunder After Mistake

You could point to its acquisition spree, much of which didn’t make sense even at the time – Beckley, Ace Valley, and the like. The buyout binge slashed Canopy’s cash position by almost half, and even once the CEO was replaced, the acquisitions continued apace.

Canopy was supposed to launch a market-crushing, all-new line of “Cannabis 2.0” cannabis-infused beverages. These would’ve been the very first mainstream “cannabeverages” in the market, and they were expected to launch… in January 2020. The company soon put on the brakes, saying it wasn’t ready to launch, that it didn’t have production facilities ready. Meanwhile, at least two other cannabis companies have teamed with gigantic beverage distributors to market their cannabis drinks. Canopy blew a commanding lead in that segment, and it may never recover; don’t stick around to wait for it.

Worst of all, Canopy has consistently misread the market, specifically the demand for its products. In other words, it’s blitzed the retail markets with products consumers don’t want and, therefore, don’t buy. Notoriously, in late 2019, it announced a $32.7 million hit on its softgel and oil products, which has led to seven- and eight-figure “restructuring charges” in some quarters.

Its “Godfather of Cannabis” CEO was fired amid a string of disappointing quarters, but that wasn’t enough to get back on track.

In 2020, that unmatched global footprint of Canopy’s shrunk significantly when it shut down a number of its operations in Canada, the United States, Latin America, and Africa.

Look, it’s late 2021 already. Canopy has had two years to turn it around, and it simply hasn’t. Sales for the quarter ending June 30 were down 8%… at a time when sales for the broader cannabis market have continued to grow – from the first to the second quarter of 2021, legal cannabis sales grew 4.4%. The company is still burning through cash at an alarming rate.

The risk of owning CGC right now far, far outweighs any potential reward. Sell it at market today, before the close.

But… keep an eye on it; I know I will. For everything that’s gone wrong over the past two years, Canopy is in the process of restructuring, shedding deadweight, and selling off redundant assets to try and rebuild its once-mighty cash hoard. Its June 2021 acquisition of the Supreme Cannabis Company Inc. (OTC: SPRWF) and, more to the point, Supreme’s loyal customer following, could give it a better position in the market, given enough time.

— Danny Brody

Source: Money Morning