How is a pot company worth 6.2x more than Crescent Point?

The other day while we were in Regina, the clan was hungry. Seeking sustenance, this chief hunter-gatherer pulled into the parking lot of the east side Burger Baron, one of our preferred restaurants. I was looking forward to a burger or maybe their fish and chips. Mmmmm.

We had noted the night before that the Albert Street location was closed. This one wasn’t looking to promising, either. No haddock for me.

We parked, and the daughter got dispatched to see what was on the door. She confirmed it was closed.

So imagine my surprise a few days later when I saw a CTV News story posted online about two new locations for pot stores in Regina, one being the defunct Burger Baron location we had wished to eat at.

(I don’t know much about pot consumption, but wouldn’t a burger joint in the back and pot shop in the front be a perfect profit combination to satisfy the expectant munchies?)

An interesting note in the CTV story was the involvement of Canopy Growth Corporation, whose website notes, “In April 2014, Canopy Growth became the first cannabis company in North America to be publicly traded.”

I have avoided this whole Mary do you wanna revolution as much as possible. But occasionally I had heard of Canopy Growth. Typing it into Google, I soon saw a CNBC clip showing Mad Money’s Jim Cramer recommending it.

“I believe that Canopy Growth remains the best way to play the Canadian cannabis market,” Cramer said on Dec. 11.

On Dec. 12, Canopy Growth Corporation (WEED.TO) was trading at $42.84. That’s down quite a ways from its Oct. 15 52-week high of $73.75, but then again things were pretty high around pot legalization day.

Either way, its market capitalization on Dec. 12 was $14.68 billion dollars. Pretty heady stuff. It’s definitely a stock market darling.

So then I looked up a former darling of the stock market, Crescent Point Energy Corp. Its stock was trading at $4.31, down from a 52-week high of $11.81. What was Crescent Point’ market capitalization? A measly $2.37 billion.

Holy brownies, Batman! The pot company’s market cap was 6.2 times the value of the largest oil producer in Saskatchewan, with total production, at last report, of 174,275 barrels of oil equivalent per day (boepd) across all its assets. That’s enough to theoretically use every drop of capacity at the Regina refinery, and have another 40,000 boepd to spare.

Things have been pretty tough for Crescent Point since the oil downturn hit in late 2014. They were among the first companies to tell their vendors essentially, “Thou shalt cut your prices or you won’t be working with us again,” leading many other oil companies to follow suit.

An activist investor shook them up this year. The long-time CEO Scott Saxberg left the company earlier this year. Wallowing in debt, the company is now seeking to sell off roughly 50,000 boepd in production, a huge contraction for a company whose principle focus had been continual growth.

During the worst days of the oil downturn, Crescent Point led the nation for roughly three years in the number of active drilling rigs it employed. Sometimes it had as many as 26 rigs going in Canada, not counting the U.S., and nearly all of those were working in Canada. At some points roughly half of the working drilling rigs in Saskatchewan were working for Crescent Point.

Their pronounced reductions in what they were willing to pay their vendors had most service companies working for them cursing Crescent Point, but that being said, one also had to thank God for Crescent Point, too. As Saxberg promised, they still kept a lot of the oil patch working when everyone else all but shut down activity.

And this is where the dichotomy of the two companies’ market valuation is absolutely absurd. One is producing oil to fuel your car, and the other is producing weed to hotbox in it. Oil, we need. Oil has paid many of the bills, not only in this province, but in this nation (despite Quebec premier François Legault recently saying that there’s no “social acceptability” for our “dirty energy.”) Weed, on the other hand, is weed, or in the case of Canopy Growth, WEED.TO, their stock ticker.

In September 2014, just before the big oil crash started to take hold, I had a chance to talk to Saxberg. I asked him, “This area was once dominated by Shell and large major players. Some people seem to think you’re setting up to be a size attractive enough for a Shell or Exxon for an eventual buyout.”

Saxberg replied, “We’re a $20 billion market cap company, going to $30, $40 (billion). We’ve never entertained any of those, or had anybody approach us. So we’ll focus on growing the company and being successful. We have a five year, 10 year plan to do that.

My, how things have changed. Some people might think that thought would be worth a toke.

That makes sense, because the way the markets are working, there must be a lot of people baked out of their gourds.

 

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.

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