Can Canopy Growth USA give Acreage Holdings a glow up?

The leadership of Canopy Growth Corp. (TSX: WEED) (NASDAQ: CGC) put its foot in its proverbial mouth a bit this week by celebrating its about-to-close ownership of New York-based Acreage Holdings Inc. (CSE: ACRG.A.U, ACRG.B.U) (OTCQX: ACRHF, ACRDF) as part of its plan to get back into the black.

Just a day after Canopy CEO David Klein touted the potential of the company’s new U.S. wing, dubbed Canopy Growth USA – which includes Acreage and its multistate marijuana footprint – Acreage released its financial filings for the first three months of 2024, which included multiple notices of default on debts, an accumulated deficit of $775 million, and a clear warning that the company may not be able to continue operations through the next year.

As of March 31, Acreage had just $7.3 million in cash, $90.4 million in total assets, and $365.2 million in total liabilities.

Still, Klein said that he expects Acreage’s financial issues to disappear once it’s formally assimilated into Canopy Growth USA. But GreenWave Advisors founder Matt Karnes said the Canopy executive may simply be putting lipstick on a pig.

“I don’t think they could back out now. So I think they’re kind of stuck,” Karnes said, noting he’d looked into whether Canopy even has the legal option to cancel the acquisition deal, which was originally signed back in 2019 and has yet to fully close.

“They have to make lemonades out of lemons. So they’re going to say, ‘Yeah, everything’s great, we’re going to do this, this, and this,’” Karnes said of Klein’s optimistic take on Acreage.

To be fair, Karnes said, there are some bright spots in Acreage’s near future, including the launch of the Ohio recreational marijuana market in June, the ongoing development of the New York and New Jersey cannabis markets, and the potential for massive tax savings once the federal rescheduling process is completed.

“It would really suck if they had nothing in front of them, but there are some good things ahead,” Karnes said.

But when pressed on how dire he thought Acreage’s situation was – and how good a bet Canopy made on the company – Karnes hedged, especially in the wake of MedMen Enterprises’ recent collapse, which was something of a wakeup call for many publicly traded marijuana companies.

Although Karnes didn’t put Acreage in the same boat as MedMen – which was infamous for its lack of corporate governance under founding CEO Adam Bierman – he did criticize Acreage management for some poor choices that he said likely contributed to the current situation.

“I would just say, it’s a show-me story. Canopy, I don’t think they have a choice. They have to make the best of what they have, and hopefully they’ll make better management decisions” than Acreage has to date, Karnes said.

“Time will tell” if Canopy and Acreage can turn things around for the struggling MSO, Karnes said, and pointed to Acreage’s balance sheet. “They have so many outstanding liabilities that are in excess of what their assets are. It’s a big mess.”

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