Canopy Growth Corp (NYSE: CGC) formed in 2009 and headquartered in Smiths Falls, Canada, is a licensed cannabis producer. CGC already have commercial operations up and running, with well-diversified operations in eight countries, including Canada and having a licensed domestic growing platform of 2.4 million sq. Ft. This domestic production capacity is planned to increase to 5.6 million sq. Ft. by the end of the calendar year to meet demand from the recreational market following legalization, as well as the rapidly expanding global medical cannabis market.
In the recent past, Canopy Growth has been an outperformer within the industry, and its shares have performed extraordinarily due to overall positivity led by the legalization of recreational marijuana.
CGC recently announced its listing on the New York Stock Exchange and has become the first publicly traded federally regulated cannabis company in North America, and the first to be included in the S&P/TSX Composite index.
In addition to long-term benefits, this brings a significant advantage for the overall financial flexibility of the company and its investor, as the company now has access to much broader capital markets and even stronger possibilities of M&A activity in the marijuana space. Moreover, this also enhances the overall brand equity and liquidity for its shareholders.
Analysts expect that revenue and earnings will be the critical catalyst for Canopy Growth over the near to medium term and the company is expected to grow significantly, especially as a result of their operations within Canada which is a month from legalizing marijuana federally.
From a competitive angle, the company’ strong business and market profile keep it ahead of the pack and differentiates CGC from its competitors and effects of commoditization.
Recent performance highlights:
Analysts tracking the stock believe that Canopy Growth has never been in a better position to take advantage of its robust infrastructure and continue to focus on adding value to the shareholder. Furthermore, driven by the accelerated interest of the market, CGC has become a viral play in the legalization of recreational cannabis. Taking a valuation call on the stock and, on the sector, share now ruling at $29.50, it can move to a level of $40.0 in next few months.
About the Brands: The diverse brands “under the Canopy” allow CGC to effectively deploy brands that are targeted towards specific customer demographics, use occasions, and product form factors.
Other recent announcements:
- On June 7th, the company announce that it has entered into a collaboration agreement with Canadian laboratory services company Molecular Science Corp. (“MSC”) to advance cannabis testing, support product knowledge, and enhance safety awareness, all part of the responsible development of the Canadian cannabis industry.
- On June 6th, announced that it would contribute CDN $2.5 million to the University of British Columbia (“UBC”) and BC Centre on Substance Use (“BCCSU”) to fund research into the potential utility of cannabis in addressing the overdose crisis. The funds, provided over a two-year period, will establish the Canopy Growth Professorship in Cannabis Science and create an enduring legacy of research through the Canopy Growth Cannabis Science Endowment Fund.
- On June 1st, the company announced announce that it has been selected to apply for five cannabis retail permits by the Saskatchewan Liquor and Gaming Authority (SLGA). This makes Saskatchewan the third province in Canada, after Manitoba and Newfoundland and Labrador, where cannabis consumers will be able to receive a Tweed-branded user experience in a brick and mortar environment. The permits will allow the Company to open cannabis retail locations to serve the adult market following legalization and include the ability to operate an online store serving the entire province via e-commerce.
- On May 30th, the company announces that the Company has acquired Daddy Cann Lesotho PTY Ltd., trading as Highlands (“Highlands”). The total value of the consideration payable by the Company under the terms of the agreement is approximately $28.8 million. This marks the fifth continent of operations for Canopy Growth who has market presence in North and South America, Oceania, Europe, and now Africa.
Financials for three months ended December 31st, 2017:
The CGC FYE is March 31st
- Third quarter revenue was $21,700, representing a 123% increase over the quarter ended December 31, 2016, when revenue totaled $9,752, and a 24% increase over revenues of $17,569 in the second quarter of fiscal 2018;
- Net earnings in the third quarter of fiscal 2018 amounted to $11,014, or $0.01 per basic and diluted share, compared to net earnings of $2,976 or $0.03 per basic and $0.02 per diluted share in the third quarter of fiscal 2017;
- Consolidated cash and cash equivalents were $237,708 at December 31, 2017 prior to the addition of net proceeds of $192,514 from the bought deal that closed on February 7, 2018 and proceeds from the Canopy Rivers private placement, net of $5,141 investment by Canopy Growth, of $20,859, that closed on January 10, 2018
Key risk factors and potential stock drivers:
- Notwithstanding CGC’ unique and differentiating factors, the company is still exposed to risk related to competition and peer pressure. There are other highly diversified cannabis companies in the industry. Additionally, there’s a cannabis ETF that recently launched for even more diversification;
- Company’ ability to grow revenue while significantly improving its profitability will continue to remain a critical price sensitivity for the company;
- Company’s ability to maintain its liquidity and financial flexibility to fund its incremental capital requirements. Since cannabis is still illegal at the federal level, it is not easy for CGC to access capital on agreeable terms;
- Company’s ability to continue the growth momentum would be an essential factor. Moreover, given the sector it operates in, it is necessary for the company to keep innovating or acquire other entities in a bid to grow and consolidate its overall resources;
- The company continues to face significant regulatory risks and uncertainty, while at the same time additional localities legalize cannabis.
- On Tuesday, June 12th, 2018, CGC was at $29.96, on volume of 1.2M shares exchanging hands. Market capitalization is $5.90 billion. The current RSI is 59.35
- In the past 52 weeks, shares of CGC have traded as low as $16.74 and as high as $32.78
- At $29.55, shares of CGC are trading above its 50-day moving average (MA) at $25.22 and above its 200-day moving average (MA) at $19.45
- The present support and resistance levels for the stock are at $26.59 & $34.65 respectively.