Canopy Growth Corp. (CGC), the first cannabis company to record on the New York Stock Exchange and now with a market value of $ 13.6 billion. USD, positioning itself to conquer the United States. Now Canopy is the leader in the Canadian market, "They are now spending the $ 4 billion in cash they received from Constellation to get a route to control on the world's largest market," according to Jefferies analyst Owen Bennett, outlined in a detailed history of the company's strategy in MarketWatch, as outlined below.
Canopy's strategy of sacrificing profits to invest heavily in growth faces a major test. The challenge faced by the company in both Canadian and US markets is illustrated in its latest mixed quarterly earnings report. It hit revenue estimates, but its losses were expanded, which sent the stock fall. Even with this fall, Canopy's shares were around 47% the year before at the beginning of the afternoon trade, crushing the wider index.
What It Means to Investors
But analysts see Canopy & # 39; s long-term outlook so strong. Last year, the leading cannabis producer received $ 4 billion from alcoholic giant Constellation Brands (STZ) for a 38% stake in the company. Since then, the company has made a big step in the US market. Despite regulatory hurdles, he acquired the rights to buy the major American company, Acreage Holdings, with a market value of about $ 3 billion by Washington taking a more relaxed approach to cannabis ban. In the future, Acreage plans to start selling Canopy's Tweed and Tokyo Smoke brands in the US
Currently, the US government classifies cannabis with drugs such as heroin, which excludes domestic industry players from traditional banking and other activities.
CBD and Hemp Sales
Meanwhile, Canopy has already started selling products containing the non-psychoactive hemp cannabidiol, or CBD, in the New York state. Analysts at Piper Jaffray estimate the US CBD market at as much as $ 15 billion in five years, per Bloomberg. Instead of waiting for US federal law to change, Canopy gets a few steps ahead of the game by building hemp operations in the United States. When the time comes, the company "must quickly and easily transform its lawful hemp cultivation and processing facilities in the United States to handle cannabis," per. Market Watch.
Bennett at Jefferies views Canopy's Acreage acts as a "big positive" and expects the deal to close in fiscal policy by 2021 and contributes to revenue from the 2022 revenue. In addition to Acreage, Canopy has warrants for two other US operators, Terrascend and Slang Wordwide, which it can exercise against the United States, lifting its ban on recreational cannabis and instead leaning against regulation.
Canopy's expansion can worsen its economic losses in the short term. Last week, Canopy's fourth quarter was lost wider than expected. The most important thing is that the company warned that the agreement to acquire rights to Acreage will result in a tax that will have a "significant negative impact on net income" in the first quarter.
Such growth pangs are not uncommon for new businesses in new industries. And the canopy is better placed than most players to take advantage of the rapidly growing cannabis market. Medical marijuana is now legal in dozens of countries and US states, while recreational use is now legal in Canada, Uruguay and a number of US states. The legal US legal marijuana industry alone is expected to exceed more than twice as much as $ 77 billion by 2022, according to the Marijuana Business Factbook.