5 things you need to know about the hottest weed stock
A worker pushes a cart of marijuana plants at the Canopy Growth Corporation facility in Smiths Falls, Ontario, Canada, January 4, 2018. REUTERS/Chris Wattie/File Photo
Canopy Growth Corp. is the biggest publicly traded weed stock, with a market cap of $11.6 billion. The Canada-based multi-brand cannabis company, which started out as a penny stock in 2012, became, on May 24, the first marijuana company to list its shares (CGC) on the New York Stock Exchange. The stock also trades on the Toronto Stock Exchange (WEED).
The legal cannabis market in the U.S. is expected to reach $11 billion in consumer spending this year and more than $23 billion by 2022, according to a report by Arcview Market Research and BDS Analytics. Meanwhile in Canada, recreational marijuana is expected to be legalized on Oct. 17. As recreational and medical marijuana companies vie for market share, Canopy Growth is well positioned to benefit from the growing industry.
Here are five things you should know about Canopy.
Its big investors
On Aug. 15, Constellation Brands (STZ), a major alcohol company and owner of Corona and Modelo beers, increased its investment in Canopy, infusing $4 billion into the firm — bringing its ownership stake in the weed company to 38%. Canopy stock went up 32% after the announcement.
The investment is the largest in the cannabis industry to date. Last year, Constellation Brands invested about $200 million in Canopy Growth. As part of its latest investment, Constellation received a warrant to buy up to 139.7 million in new Canopy shares over the next three years, which represents up to $5 billion in additional funding. If Constellation utilizes those warrants, it could raise its stake in Canopy to more than 50%.
Canopy’s other major investors are Goldman Holdings, JW Asset Management and Vanguard Group.
Explosive growth
Until 2015, Canopy was formerly known as Tweed Marijuana, which was a pink sheet penny stock trading in the OTC market under the symbol TWMJF. Canopy was one of the first companies to obtain a license to produce medical marijuana in Canada. In April 2014, Tweed started trading in the Toronto Stock Exchange at $5.10 before the name change. Today, Canopy is the first publicly traded, federally regulated cannabis company in North America, and the first to be traded on the NYSE.
“Five years ago, as a small Smiths Falls-based startup in the cannabis sector, we could have never imagined this historic moment,” said Bruce Linton, chairman and CEO of Canopy Growth in a press release announcing the company’s NYSE-listing debut.
Canada was the first country in the world to legalize medical marijuana in 2001 and earlier this year in June it became the second in the world to legalize recreational marijuana, opening a CA$4.2 billion and CA$6.2 billionrecreational marijuana market to Canopy and other producers. Vivien Azer, a senior research analyst at Cowen and Company, estimates the Canada cannabis market (including medical) to increase to CAD $12 billion by 2025.
Canopy entered supply agreements to provide cannabis-based products to several Canadian provinces. In July, it signed the largest supply agreement of its kind in Canada with Alberta Gaming, Liquor & Cannabis Commission to supply Alberta with over 15,000 kilograms of cannabis products to support the first six months of the province’s adult use recreational cannabis market.
On Aug. 16, the day after Constellation Brands announced its investment in Canopy, the average analysts’ rating was a Buy with a consensus price target of $19. Analysts have since raised their price targets to a consensus of $51 per share, which the company surpassed this week. In the past month alone, Canopy more than doubled its share price. Its stock was trading above $52 per share Friday morning.
Global reach
Although Canopy doesn’t sell cannabis products in the U.S., yet, the company has made a series of acquisitions to operate in 11 countries including Australia, Latin America, Europe and Africa. With the Constellation cash infusion in its pocket, Canopy plans to expand in more than 30 countries where medical marijuana is expected to be legalized.
In April, Canopy launched Spectrum Australia with support from the government of Victoria and announced it will invest $16 million AUD in the Australian state over the next four years to establish Spectrum’s AsiaPacific headquarters. The location will house a research and development facility to cultivate and produce medical cannabis and serve as a distribution hub in the region.
A month later, Canopy expanded into Africa, buying Daddy Cann Lesotho, a cannabis production company in the Kingdom of Lesotho (a sovereign state within South Africa). In 2017, Lesotho became the first African nation to legalize medical cannabis; Canopy has the rights to cultivate, manufacture, supply, hold, import, export and transport cannabis in the region. In Latin America, its local affiliate Canopy LATAM Corporation acquired Spectrum Cannabis Colombia, expanding its focus on the emerging medical cannabis market.
Clinical trials
Canopy is involved in research and development of several cannabis-based drugs to treat anxiety and insomnia in humans and animals through its Canopy Health Innovations and Canopy Animal Health subsidiaries.
Canopy “is making significant progress in its Canopy Health segment towards developing cannabis-based formulations, including 15 clinical trials and 39 U.S. patent applications,” said Azer, the senior research analyst at Cowen and Company, which does business with Canopy, in a research note. Azer wrote that anxiety is a $200 billion global market opportunity and insomnia is a $77 billion market, while insomnia in cats and dogs is a $7.6 billion market.
Health Canada, the department of the Canadian government responsible for national public health, recently authorized Canopy Health Innovations to proceed in Phase 2 “in-human” clinical trials to treat insomnia. And the Drug Directorate of Health Canada recently approved Canopy Animal Health to research the effectiveness of cannabidiol to treat anxiety in animals.
It has an interactive weed museum
When Canopy Growth was known as Tweed Marijuana, the company converted an abandoned Hershey chocolate factory in Ontario into its headquarters. Since then, Canopy has turned the nearly 200-year-old brick building into a Willy Wonka factory for cannabis.
The “Tweed Visitor Centre” opened for tours last month to adults over 19 years old to “stroll along the catwalk Hershey left behind and look down on a new era of production activity.” Visitors can go on a journey through specific licensed rooms and exhibits that educate them on the art, culture, science and history of the cannabis plant. Linton said in a press statement announcing the new museum that he hopes it will bring “hundreds of thousands of tourists” to Smiths Falls (which has a population of 10,000) who haven’t visited since Hershey closed 10 years ago.
Perhaps this is where Constellation Brands can help Canopy. Brewery tours are popular with tourists around the world. For example, Jack Daniel’s distillery in Tennessee gives behind-the-scenes tours on its whiskey-making process along with flight tastings for over 300,000 people annually. The Heineken Experience in the Netherlands hosts over 500,000 people annually in Amsterdam. The tour details the dutch beer’s heritage, brewing process, innovations, and gives visitors a complimentary Heineken. Perhaps tourists of the Tweed Visitor Centre will get complimentary cannabis chocolate.
