Even after having its price cut in half by the coronavirus reaction, shares in Canopy Growth (NYSE: CGC ) were still due to open March 19 at about 12.3 times last year’s annual revenue of $368 million. Put another way: it’s still overpriced.

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Excitement over marijuana legalization sent Canopy stock on a great trip last year. It traded as high as $50 per share last April.

But once it became apparent that illegal weed was a better value, Canopy’s price fell. Now, with a lung disease ravaging its customer base, the bottom is dropping out.

Constellation Brands (NYSE: STZ ), the liquor company that invested $4 billion in the pot grower back in 2018, has seen the value of that investment shrivel like a grape in the sun.

Key Questions

The question now is whether Canopy, or Constellation, have the financial wherewithal to not only get past the crisis, but change government attitudes toward pot.

The problem for Canopy is one of legal demand. Governments that have legalized marijuana see it as a tax windfall, and a way to deliver equity to poor people ravaged by prohibition.

All fine, but the result has been pricing that’s double what illegal marijuana, or pot-based products, may cost. Delays in opening stores also means illegal weed is more widely available than legal cannabis, because Dealer McDope delivers.

Rather than reverse course when this became apparent, and hoard cash, Canopy expanded into “Cannabis 2.0,” a range of beverages, edibles, and CBD oil that proved as disastrous as pot itself. The beverages and edibles were just like the raw product, overpriced. The CBD oil was a fad that couldn’t prove a therapeutic benefit.

Throughout this I have been pounding the table on Canopy, telling readers to avoid it. For a long time Constellation’s size was protecting Canopy from the worst of the sector’s problems. Now, with the coronavirus spread dragging down the maker of Corona beer, Constellation is down 38% on the year. Canopy is down by 53%.

Constellation is no longer in position to prop up anyone. It ended November with just $93.7 million in cash. It also had $11.3 billion in debt. Its agreement to sell low-priced brands to Gallo had to be cut in half to satisfy regulators. Even if it closes on the present terms, it won’t cut debt by much. A bumper harvest in California, and changing tastes among younger drinkers, mean prices for even good wine are plummeting.

As a result, Canopy Growth has been forced to close greenhouses and lay off hundreds of workers. Plans to expand production into eastern Canada have been shelved.

Thanks to Constellation’s investment, Canopy is now the healthier of the two partners, with $2.3 billion in cash and short-term investments at the end of 2019. The right move for Constellation, then, might be to buy the rest of Canopy and seize that cash. But it can’t do that at present prices without significant dilution in its equity.

The Bottom Line on CGC Stock

The 2018 marijuana high, for investors, has become 2020’s bummer. CGC stock is the poster child for telling investors to “just say ‘no’.”

Constellation may be able to get out from under some of its current troubles by waiting for Canopy to fall further, then gobbling it up at a bargain price. Another few weeks of panic would make that possible.

Yet, Canopy is still the healthiest of the pot stocks. It’s likely to survive in some form. You, too, might want to watch the Constellation bottom, then scoop some of it up. As bad as things are now, people will want to drink when all this is over … and smoke as well.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.