GMP downgrades Canopy, a humble G&M business reporter leaves for a career in their research dept

Lions and Jackals have a symbiotic relationship in the wild, despite sharing a food supply

There was trouble again in cannabis equities media, as The Globe and Mail‘s Christina Pellegrini left her post on Monday, briefly told the world via twitter profile that she was “between gigs,” and has since taken a job “in the cannabis biz 🌳” with Canopy Growth Corp. (TSX:WEED)(NYSE:CGC), according to her twitter and linkedin profiles.

Former Globe and Mail reporter Christine Pellegrini is set to confirm our connection request any minute now…

This move was telegraphed by the apparent chagrin of her editor, Scott Barlow, and first reported by the eagle-eyed @GoBlueCDN, who is having a hell of a week, having also been the first one to spot Canopy Growth’s non-gap EBITA being off by $86 million in their MD&A.

Barlow immediately clarified with two replies that he was only joking, but that didn’t really take the sting off. Cannatwitter is a pack of bloodhounds when it comes to media bias, whether it’s there or not, and they weren’t ready to let this one slide.

Best-in-class cannabis sector youtuber bacon_is_bad didn’t waste any time getting a video up lampooning Canopy CEO Bruce Linton’s BNN-hosted charge for the moral high-ground with respect to owning and allowing his staff to own deals that Canopy finances, acquires, or may acquire, and worked in a reference to Pellegrini’s apparent familiarity with the Canopy corporate jet while she was still at The Globe and Mail.

Busted coverage?

The former reporter does appear to have flown out to St. John’s with Linton in October to witness and report on Linton’s sale of the first Canadian recreational grams, though her article doesn’t mention if they flew on a G5, or just first class commercial.

On a plane to St. John’s hours before the first sale, Canopy’s Mr. Linton was reflective, talking about how far the company has come, how it was on the verge of bankruptcy three times, how difficult it was to raise money and how nothing went as planned.

“I don’t really know what’s going to happen,” he said. “The whole thing about being in the marijuana sector is I’ve yet to have anything that’s happened in the way that we thought it was going to happen. Everything’s happened sideways, backward, faster, slower.”

– First legal purchase of recreational cannabis made in St. John’s, marking end of Canadian prohibition, The Globe and Mail, Oct 17, 2018

But this Barbara Walters-style profile of Canopy, its CEO, and a public relations stunt disguised as a news item isn’t the only kind of work Pellegrini is capable of. The Schulich School of Business grad got some ink under her fingernails reporting on stock positions that Aphria Inc. (TSX:APHA)(NYSE:APHA) directors failed to disclose ahead of their takeover of Nuuvera Cannabis this past January.

Four executives and three other directors of Aphria Inc. personally owned shares in Nuuvera Inc. at the time they orchestrated a takeover deal for the cannabis firm, but didn’t disclose their holdings to investors and later voted to approve the transaction at a board meeting.

The executives included Aphria chair and chief executive officer Vic Neufeld, as well as the company’s chief financial officer, Carl Merton, Mr. Neufeld said. The company says the investments were not large enough to require disclosure.

Aphria agreed to buy Nuuvera for $826-million in late January, only three weeks after Nuuvera went public on the TSX Venture Exchange.

Aphria insiders held shares in takeover target, didn’t disclose, The Globe and Mail, March 25th, 2018

This disparity caused much speculation about whether or not Pellegrini was applying her talents selectively while at The Globe, which is a reasonable question.

$826 million is a big number, so in the interest of fairness we’ll also pass on that the first cannabis sale Linton orchestrated in St. John’s cost $49.98 after tax.

Free press isn’t free!

In further interest of full disclosure, we’d like to make our readers aware that Fundamental Hype‘s editor-in-chief and VP of marketing contacted The Globe and Mail when this news broke to inquire about a job that might be opening up on the cannabis beat (haven’t heard back yet). We don’t have sponsors, and don’t know what any of these companies are spending on their media buys, but have to hand it to Canopy, who appears to be getting more bang for their buck than Aphria. A future staff position is surely a lot cheaper than whatever Aph is spending on media.

Growth equities focused financial portal Grizzle felt jilted in the wake of all of this. Founder Thomas George claims that The G&M has used his publication’s patented Language of New Money as an un-credited source for some time now, and we’ll take his word for it, even though we’ve yet to see The Globe use projected earnings as a common denominator.

Grizzle‘s disclosure statement says in part that: “Grizzle may seek or may be currently doing business with companies featured in content originating on Grizzle.com,”

But doesn’t say whether or not Aphria, who Grizzle‘s head of research Scott Willis makes for an upside of $200/share in this “conviction call,” is one of those companies.

Credit? Forget it.

We feel for George, and would like to express solidarity.

GMP Securities’ recent downgrade of Canopy was based on concerns about an apparent decline in inventory, which Fundamental Hype covered in both a pre-earnings look at the company, and a post-earnings summary that raised alarm at the company’s deletion of their by-weight inventory reporting.

Chart depicting the changing nature and eventual elimination of Canopy’s inventory count, rising sales and declining harvest. MUST CREDIT FUNDAMENTAL HYPE!!!

Yahoo Finance also had GMP’s Managing Director of Equity Research Martin Landry attributing the downgrade to shrinking count of SKUs in provincial dispensaries, which Fundamental Hype provides ongoing coverage of in our “war for shelf space” series.

Landry shaved $5 off his price target for Canopy shares, from $70 to $65, and downgraded the stock from a buy to a hold rating.

[…]

GMP found the number of Canopy product SKUs listed for sale on Ontario, Quebec, and Alberta’s government-run online stores declined in the past month to under 20 per cent.

-Yahoo Finance, February 19th, 2019

Our January scrape of BC, Ontario, PEI & Newfoundland online stores showed Canopy with 14% of available SKUs at our sample on-line dispensaries. This is the number of individual products, and does not account for volume of available supply.

If anyone out there in the GMP Research department is reading: we’d sure like a crack at those Alberta and Quebec dispensary SKU counts. Our scrapers don’t work on their sites and the government has been less than helpful.

A January 15th report by Landry raising the GMP target on Canopy by $20, from $50 to $70, made no mention at all of the company’s inventory, or the number of products they’re able to get on shelves, basing his conviction instead on Canopy’s access to US markets, and to international markets for its goods

“The entrance of Canopy in the U.S. is significant. Its shares could receive a lift from investors looking for exposure to the U.S. cannabis market, given the company is currently the only cannabis company with U.S. operations listed on a major U.S. stock exchange,” Landry wrote in a research note. “We have doubled our international sales forecasts, which drives our valuation increase.”

Not sure about Landry’s rational on that January upgrade, considering the fact that Canopy explicitly does not have any US Cannabis operations, and their international sales account for only 7.3% of revenue. From WEED’s (restated) Dec. 31 MD&A:

Canopy Growth does not engage in any U.S. marijuana-related activities as defined in Canadian Securities Administrators Staff Notice 51-352. While the Company has a number of partnerships with U.S.-based companies that may themselves participate in the U.S. cannabis market, these relationships are licensing relationships that see intellectual property developed in the United States brought into Canada, and in no manner involve Canopy Growth in any US activities respecting cannabis.

Access to the US capital markets is, of course, the holy grail of cannabis equities and Canopy has it through a US listing. They also hold options on US operations that convert to stock in the event that cannabis becomes legal stateside, but no actual exposure at the moment.

We don’t know for sure if Mr. Landry is a reader, but do see several @gmpsecurities.com addresses on our mailing list, would like to thank them for being such loyal readers, and invite them to to be the first patrons of a paid subscription service that we invented just this second. Email us for details.


Canopy is down $1.39 (-2.29%) today following GMP’s downgrade.

Landry hasn’t friended us back, either, but he’s probably busy directing the management of all that research.

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About Braden Maccke 60 Articles
Founder and Editor in Chief at Fundamental Hype, a blog about venture stage finance and the media that supports it.

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