CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) can be seen building momentum ahead of federal legalization of marijuana for adult use in Canada.
In our last coverage of TWMJF, we looked at how the company was adding partners to expand its product distribution network. In this piece we’ll examine notable recent developments around the company to see how the company is positioning itself for a larger market for legal marijuana in Canada so that you can see the prospects for TWMJF stock.
Before we get into the details of today’s coverage of TWMJF, take a look at the company’s stock price action.
For the sake of readers not familiar with TWMJF, here’s a little background on the company.
TWMJF is a licensed cannabis producer headquartered in Smith Falls, Canada. The company operates through subsidiaries that produce and commercialize a range of medical marijuana products in Canada. Its supplies include marijuana-based products served in oil, softgel and dried forms.
TWMJF prides itself as the world’s largest producer of regulated cannabis. As the market for regulated cannabis expands, the company has been adding capacity to cope with the growing demand and to ensure that it is in a position to capitalize on the arising opportunities better than its competitors.
Canada is expected to federally legalize cannabis for adult or recreational use by July 2018. Preparations are underway across Canada – at federal and provincial levels – to craft regulations for the coming recreational marijuana market. Ontario is one of the regional administrations that have come up with regulatory framework for recreational marijuana.
New Brunswick provincial government has also taken steps toward regulation of the recreational marijuana market. In its efforts to develop and nurture a formal market for marijuana to quash the black-market trade in the substance, New Brunswick has envisioned a regulatory framework that is a boon to large and trusted cannabis producers like TWMJF.
On September 15, TWMJF announced a supply contract with New Brunswick that it described as historic. In the announcement, TWMJF said it had been selected to supply high-quality cannabis products to a new crown corporation created by New Brunswick to be the purveyor of retail recreational cannabis products in the province.
TWMJF was selected alongside fellow producer ORGANIGRAM HLDGS I COM NPV (OTCMKTS:OGRMF) for the landmark deal to supply cannabis products for the adult market in New Brunswick. Mark Zekulin, the president of TWMJF, stated the following about the deal with the provincial administration of New Brunswick:
“Today we take the next step towards the future of cannabis in New Brunswick with a truly historic MOU. We are excited to bring high quality brands like Tweed, Leafs By Snoop, DNA Genetics, as well as a number of the best independent craft grow cannabis producers across Canada to the people of New Brunswick through this arrangement.”
The supply agreement between producers TWMJF and OGRMF and New Brunswick is actually crafted as a Memorandum of Understanding (MOU), with an initial life of two years.
This agreement is beneficial to TWMJF in several ways and we’ll briefly examine the outstanding benefits.
Revenue guarantee for two years: The MOU will guarantee TWMJF a steady revenue stream for at least two years. For the first year, TWMJF will supply New Brunswick with 4 million kilograms of cannabis products with an estimated retail value of C$40 million. For a company that generated revenue of C$39.9 million for the whole of fiscal 2017 (ended March 2017), the New Brunswick contract would be a significant topline boost.
A reputational boost: The MOU with New Brunswick goes a long way to bolster TWMJF’s credentials in the legal cannabis supply-chain – expanding the opportunity for the company to win more large contracts as the government deal has shown it as a trusted supplier.
Quashing unfair competition: By creating a regulatory framework where a crown corporation run by the provincial government will be the purveyor of retail cannabis products for the adult market, New Brunswick has taken a step that would stifle the black-market. As such, the recreational cannabis distribution arrangement envisioned in the New Brunswick promises to quash unfair competition against licensed producers and suppliers like TWMJF in the market.
It’s important to note that Ontario has envisioned a recreational cannabis market regulatory framework that also promises to inhibit backstreet cannabis trade in the province.
In light of the above, New Brunswick and Ontario could set a precedent for Canada’s other regional authorities. This could open up more government contracts or seal black-markets in favor of licensed producers like TWMJF in the other provinces of Canada.
Medical market continues to expand
As federal legalization of recreational marijuana in Canada looms, don’t forget that the market for medical marijuana is also expanding at a respectable pace in the country. According to the latest data from Health Canada, the number of patients who quality for cannabis treatment in the country was at 201,398 at the end of the June, implying a 167.9% year-over-year increase and a 20% quarter-on-quarter increase. This development tells of the widening market for TWMJF in the medical cannabis market as well even as it waits for a much larger opportunity in the recreational market.
In light of the enormous market unfolding before TWMJF, the important question to ask at this juncture is not if the stock will be making new 52 week highs, but when. From capacity and financial points of view, TWMJF is well-grounded. The company recently divested a non-core asset and in that process unlocked C$7 million in cash. That added to the cash balance of C$115.5 million that TWMJF had at the end of the June quarter, puts Canopy Growth on the path to being the dominant player in today’s cannabis market.
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Disclosure: We have no position in TWMJF and have not been compensated for this article.