Canopy Growth Corp. (CGC), the first US $ 13.6 billion listed cannabis company on the New York Stock Exchange, is poised to conquer the United States. Now that Canopy leads the Canadian market, "They're now using the $ 4 billion they've received from Constellation to gain control of the largest market in the world," said Jefferies analyst Owen Bennett A Detailed Review of the Company's Strategy in MarketWatch
However, Canopy's strategy of sacrificing profits to invest heavily in growth is a major challenge. The challenge facing the company in its implementation in both the Canadian and US markets is illustrated in its most recent mixed quarterly report. It exceeded sales estimates, but losses widened causing the stock to fall. Despite this decline, Canopy stocks rose 47% year-on-year in the early afternoon of trading, putting the broader indexes under pressure.
What this means for investors
However, the long-term outlook for Canopy is good, according to analysts. Last year, the leading cannabis producer received $ 4 billion from Constellation Brands (STZ) for a 38 percent stake in the company. The company has since taken a big step in the US market. Despite regulatory hurdles, the company acquired the rights to acquire US large-scale Acreage Holdings, with a market value of approximately $ 3 billion, after Washington took a more relaxed stance on the ban on cannabis. Acreage is reportedly planning to sell the brands Canopy's Tweed and Tokyo Smoke in the US.
Currently, the US government classifies cannabis with drugs such as heroin, and excludes domestic actors from traditional banking services and other activities.
CBD and Hemp Sales
Meanwhile, Canopy has already begun selling products in the state of New York containing non-psychoactive hemp cannabidiol (CBD). Piper Jaffray analysts estimate the US CBD market at $ 15 billion per Bloomberg in five years. Instead of waiting for the change to US federal law, Canopy is expanding hemp factories in the US to stay one step ahead of the game. In due course, the company should be able to "easily and quickly transition its legal cannabis and cannabis processing facilities to US cannabis facilities," according to MarketWatch.
Bennett of Jefferies sees Canopy's Acreage deal as "a big positive outcome" and expects the deal to close in the 2021 fiscal year, contributing to sales for the 2022 fiscal year. In addition to Acreage, Canopy has guarantees against two other US operators, Terrascend and Slang Wordwide, that can be exercised by the US if they lift their ban on recreational cannabis and instead tend to regulate it in the short term. Last week, Canopy lost more than expected in the fourth quarter. Most importantly, the company warned that the acquisition of rights for Acreage will create a burden that will "have a significant negative impact on net income in the first quarter".
Such growth complaints are not uncommon for new companies in emerging industries. And Canopy is better positioned than most other vendors 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 legal in Canada, Uruguay, and a number of US states. According to the Marijuana Business Factbook, the legal US marijuana industry alone is expected to more than double by 2022 to $ 77 billion.