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Canopy Growth (NYSE: CGC) is a smokeshow.
It’s the top cannabis stock in Canada—which is the top cannabis market in the world after its recent nationwide legalization—making the stock a must-own for any investor serious about getting in on the sector. Think of it as the blue chip stock of the marijuana market.
The company is the world’s largest publicly traded pot stock by market cap and is one of the few stocks in the marijuana sector that has actually produced a solid return so far in 2018.
In the most recent quarter, Canopy reported that it had sold 2,020 kg of cannabis, and had revenues for the second quarter over C$17 million – a 107% increase from the same quarter a year ago.
The company also has $322 million in cash in the bank, and has minimal long-term debt at just under $7 million.
But when recreational marijuana legalization goes into effect in Canada in October, Canopy could see some serious growth. The company is making every effort to capitalize on the major opportunity that the recreational market will offer.
Canopy has been licensed by Health Canada to grow, produce, and sell medical marijuana. It currently has roughly 70,000 medical marijuana patients.
Ahead of legalization going into effect, it has already inked supply agreements for recreational cannabis with several Canadian provinces and has been increasing its production capacity in anticipation of the increased demand.
Canopy CEO Bruce Linton said in an interview with Business Insider that the company now boasts around 6 million square feet of greenhouse space. This will enable Canopy to produce more than 750,000 kilograms of cannabis each year making it well-equipped to meet the growing demand for cannabis products beginning in October.
Earlier this month, the company was also able to smoke out the competition to acquire Hiku Brands Company, the owner of the Tokyo Smoke retail shops across Canada, giving it a strong commercial presence ahead of legalization.
The legalization of recreational marijuana use will also open up new avenues for Canopy to grow.
Late last year, Canopy found an ally in Constellation Brands (NYSE: STZ), the maker of Corona and Modela beers. Constellation Brands took a nearly 10% stake in the company, and together the two companies will be developing marijuana-infused beverages.
Linton said that the company won’t stop at marijuana-infused beverages. “When you’re doing stuff at this scale, you start to think about things like beverages, vape pens, and chewable(s) very differently. There’s a whole range of things you’ll start to see in our product offering in 2019, and that should increase margins because you’re not really selling just cannabis – you’re taking it and putting it into something else, which usually means much better margins.”
But with all of the action happening in the recreational space, Canopy isn’t losing sight of its medical marijuana business.
“We’re a global medical cannabis company,” said Linton, adding, “When we talk about being in five continents, it’s five continents for medical cannabis. … The medical portion we speak of, over the next two and three years is as big, or much bigger than, the recreational portion.”
Canopy truly is a global player with subsidiaries and partnerships across the globe, including in Australia, Brazil, Chile, Denmark, Germany, Jamaica, and Spain.
While much of Europe is showing signs of embracing the legalization of weed, Linton singled out Germany. He says the country will be “the market I would keep an eye on over the next 12 months in Europe.”
Germany legalized medical marijuana in 2017. In the fourth quarter of last year, Canopy racked up $2.3 million in sales in the country, amounting to almost 10% of the company’s overall sales.
In Linton’s words, the rapid sales gains in Germany mark “the beginning of the beginning of the beginning.”
Canopy’s rapid growth and global footprint make the company the most dominant player in the cannabis space, and those who believe in the sector’s growth potential should dive deeper into the stock.
Stock analysis company Trefis sees Canopy’s revenue quadrupling next year to $300 million, and has a price target on the stock of $55 – 114% higher than today’s closing price.