Canopy Growth
Meta description: Canopy Growth, in terms of market capitalization, is the largest cannabis company in the world. The company has developed a far-reaching base of subsidiaries through which it manufactures its products. It is based in Smith Falls, Ontario, Canada.
Company Background
Canopy Growth is a Canadian cannabis company based in Smith Falls, Ontario. It was initially co-founded in 2013 by Chuck Rifici, the acclaimed godfather of Canadian weed, and Bruce Linton as Tweed Marijuana Inc. The company is publicly traded on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX), under the ticker symbols CGC and WEED respectively.
In 2015, it changed its name to Canopy Growth. Earlier in April 2014, it had become the first publicly traded North American company by listing on the Toronto Stock Exchange. In May 2018, it listed on the New York Stock Exchange, thereby becoming the first cannabis-producing company to do so. Today, Canopy Growth is the largest cannabis company in the world in terms of market capitalization.
The company’s vision to become the number one cannabis company in the world seems not to be a ruse. It really appears to be committed to it. It has extensive financing services, cutting-edge research and development, and manufacturing arms. Moreover, it has been able to develop medical and recreational cannabis brands with an attractive appeal to various members of the industry.
Industry Overview
The cannabis industry is currently the fastest-growing industry in the world. In fact, some analysts project that global cannabis annual sales will hit as much as $75 billion by 2030. The industry delivered $6.9 billion in global sales in 2016. Worldwide revenue significantly rose to $9.5 billion and $12.2 billion n 2017 and 2018 respectively.
Interestingly, analysts believe that this figure will further be racked up by full 2019 financial year. They have projected a global revenue increase of approximately 39%. This means that global cannabis sales can easily hit $16.9 billion and $31.3 billion by 2019 and 2022 respectively. Undoubtedly, the industry is poised for sustainable and rapid future growth.
Also, the business climate is becoming increasingly favourable for cannabis companies. Nine out of American states have legalised recreational cannabis use; medical use is already legal in 33. In 2018, Canada legalised recreational cannabis for adult use. Plus, the European market is opening up, too.
Canopy Growth: In Vigorous Pursuit of Expansion
In 2016, Canopy Growth expanded its operations to Germany by acquiring the German-based pharmaceutical distributor, Medcann GmbH. For Canopy Growth, the German market was a fertile one. Germany depends solely on importation to satisfy its cannabis needs. This acquisition facilitated Canopy’s recognition as the first North American legal source of cannabis to Germany.
The same year, the company entered the Quebec cannabis market by acquiring Vert Médical. The strategic acquisition enhanced Canopy Growth’s growing facilities and product diversification. The company also went ahead to acquire majority ownership in another Quebec-owned cannabis firm, Groupe Hemp. Groupe Hemp is a fully Health Canada licensed hemp derivative producing and marketing company.
Currently, Canopy Growth’s Quebec market share is significant. The company accounts for approximately 30% of all medical cannabis supplied to registered patients within the province. The acquisitions of those Quebec-based firms helped to further diversify Canopy Growth’s product offerings.
In January 2017, Canopy Growth cemented its leading market position when it completed its acquisition of Mettrum Health. Mettrum Health is an Toronto-based company engaged in the research, production, and distribution of cannabis. The Mettrum deal significantly boosted Canopy’s production capacities and gave it more acreage for expansion.
In fact, the deal effectively made Canopy Growth the largest Cannabis company in Canada. Hence, subsequent to the deal, Canopy Growth’s licensed production facilities increased to six and its licensed production footprint grew to approximately 665,000 sq. ft.
In February 2018, the company and Sunniva entered into a strategic agreement. Sunniva is a North American supplier of medical cannabis products and services based in Calgary, Canada. The deal required Sunniva to supply Canopy Growth with 45,000 kilograms of high-quality medical cannabis products annually. It would be on for a two-year period starting from the first quarter of 2019.
Also, on May 22, 2019, the company announced its acquisition of the UK beauty brand, The Works, in a deal worth approximately $55 million. This deal would enable the company to develop new cannabis products for beauty, wellness, and sleep medical problems.
A Summary of Canopy Growth’s 2018 Production
For the last quarter of 2018, 33% of Canopy Growth’s net product revenue came from its oils including the Softgel capsules. This represented at least a 23% increase from the revenue the company generated from the same product class in the same period the previous year. The increase in revenue might not be a surprise because generally, value-added cannabis products and derivatives are high-margin products.
To position itself to meet its projected future demand for cannabis value-added products, the Company took steps to expand its extraction capacity. Consequently, it entered into extraction supply related agreements with Valens GroWorks Corp., Medipharm Labs Corp., and POS Holdings Inc. (“POS Holdings”). In addition, the company has also inked an agreement with POS Holdings to acquire an exclusively dedicated extraction system.
Canopy Growth operates Tweed stores in Newfoundland and Manitoba and has a supply contract with all Canadian provinces. In addition, it currently has 10 licensed cannabis plants with a production capacity of more than 4.3 million square meters, including GMP-certified production areas of more than 500,000 square meters.
Financials
On June 30, 2108, Canopy Growth posted total revenue of $19.2 million for the second quarter. This represented an increase of approximately 14% from the previous quarter. Although the company posted a decline in revenue for the third quarter, its international medical revenues in the three months ended December 31, 2018, increased by 170%.
By the year ended December 31, 2018, the company also enjoyed a significant revenue from its wholly-owned subsidiary Storz & Bickel. Canopy Growth had completed its acquisition on December 6 of the year.
Summary
Is Canopy Growth a great stock to buy? Yes, but only if you are willing to assume a long-term approach. Apart from the fact that the cannabis industry will undoubtedly be huge, Canopy Growth is positioned to be a leader in it. Little wonder that Constellation Brands, the alcoholic beverage drink producer, increased its stake in it.
Canopy has the highest sales among marijuana producers. Its Canada’s market share for adult use of cannabis is also the largest. To hedge against domestic supply glut, the company has expanded to international markets. If all these could be sustained, Canopy is well positioned for tremendous future success, and so might be worth your buy.
Canopy Growth Is a Solid Marijuana Stock but currently overpriced
Marijuana stocks are likely to outperform this year, buoyed by seven U.S. states that have already legalized marijuana, while the other 10 states will discuss pot change in 2019. In addition, the Canadian authorities could authorize weed this year, as black market is estimated around $7 billion. Future fundamentals for marijuana stock also appears strong, thanks to the potential growth in legal marijuana demand.
CGC recently entered into a conditional deal with Acreage that is a head scratcher. They agreed to pay 3.6 billion for a company that only has a market cap of 935 million. Paying this huge premium doesn’t make a lot and right now the stock is being pumped up.
Marijuana sales are likely to increase by 178% to $20.6 billion by 2020, with a compound yearly development rate of 29%.
Canopy Growth Corp (CVE:CGC) is a diversified company, operating through its subsidiaries, including Tweed Inc., Tweed Farms Inc., and Bedrocan Canada Inc. The company has strong penetration in Canadian markets. It supplies pot to half of Canada’s present therapeutic cannabis base following the acquisition of Mettrum Ltd. The Canadian medicinal cannabis industry pulled in $869.0 million in lawful deals in 2016.
With the keen interest of Canadian Prime Minister, legal marijuana sales are anticipated to stand around $22.6 billion in the coming years. To place that into viewpoint, Canopy Growth is set to capitalize on growth opportunities.
This year, it altered its stock ticker to WEED, and continues to trade on the TSX. The company has a market capitalization almost $1.0 billion. Its revenue in the latest quarter increased 245% over the same period last year, while its revenue enlarged 22% sequentially to $8.5 million. It sold over one metric ton of marijuana in the latest quarter.
Moreover, the company has the potential to turn a strong revenue growth into big profits. Its net income was standing around $5.4 million, relative to earnings of $3.9 million over the prior year period. It also appears in a strong cash position to invest in growth opportunities, thanks to cash in hand of $45.5 million at the end of most recent quarter.
I would like to get in on that.