To be quite blunt, a significant amount of work has been put into the operations of Canopy Growth Corp (OTCMKTS:TWMJF). The output from the latter has been the reason behind the highs that their share price has hit during the period.
The company’s upward trajectory cannot be missed. With the company being recognized as one of the fastest growing marijuana stocks in the industry as well as being on the list of few marijuana stocks to have a billion-dollar valuation, Canopy Growth Corp has seen one of its best periods yet.
Their share price begun the year trading at just over $5. Back then, the company was backing on their understanding of a growing industry to ensure that they grew. However, their growth has far exceeded their expectations as their share price currently trades at $24.2, a near fivefold growth.
View this price action in the chart below:
We have seen a lot of developments concerning this company over the past year. As such, over the course of this piece, we take a step back and analyse some of these developments with a view to understand how they will affect the future of the company.
TWMJF: The History
Canopy Growth Corp is a licensed cannabis producer. The company was formed back in 2009 with their headquarters in Smiths Falls, Canada.
Since inception, the company has been focused on ensuring that they meet the growing demand of marijuana both within the Canadian and American market. Initially, their entry and positioning in these markets was the holy grail for them. However, something new and major happened: Canada announced that they would federally legalize recreational use of marijuana.
The announcement brought with it jubilation within the cannabis sector. Players worked tirelessly to ensure that they had enough provisions and had marketed their products enough.
However, no company seemed to have done enough to beat Canopy Growth Corp in this game.
The company, through their subsidiaries, had already established itself within the Canadian market as well as ventured globally. They already had a diversified range of products which included, but not limited to, oils, soft-gel and dried substance. With this, the company was able not only to supply large quantities within the Canadian space but also to other upcoming markets within the globe especially within Europe.
Their valuation, as stated above, took a commensurate turn for the better. To exemplify this, back in November when we last assessed the company, their market capitalization stood at $1.3 billion. However, this figure has since bloated and the company currently has a market capitalization of over $2.4 billion, nearly doubling their previous value within one month.
However, during this period, there has been little information emanating from the company. As such, almost no catalyst has been seen. This has raised the question, what is their value driver?
The Value Driver
The question as to what their value drive is has been asked quite a number of times. We have answered it is a few of our previous articles, the most recent of which can be accessed here.
Back then, the company has just made one of the biggest announcements within the marijuana space: the investment made by Constellation Brands.
Constellation Brands is a major player within the alcohol space, with its name appearing among the Fortune 500 stocks. Their investment into Canopy Growth Corp only went to prove to the market that the cannabis player was a formidable force, strong enough to warrant investment from such a huge player operating within a competing industry.
True to this, the company has set itself apart and worked at improving their operational efficiencies as was shown by the reduction in their net loss from C$22.3 million to C$4.3 million between 1Q2017 and 2Q2017 respectively. However, there has been no catalyst that has been seen to drive their valuation by the record percentage values it has been rising by.
We have a theory.
Their current price hike has been driven by a ‘wait and see’ approach.
Cannabis companies operating within Canada have been smiling to the stock exchange as their valuation seems to constantly be rising. In our view, the value driver is the fact that they operate within Canada.
With the world edging closer to July 2018 when the country is expected to legalize cannabis federally and with most of the frameworks already being in play, the market is waiting to see how the numbers will turn out during the coming quarters for such companies, hence ‘wait and see’. As such, given the valuations that some professional firms have assigned the industry, the market is attaching a premium to established players within the Canadian cannabis space.
Through this, firms like Canopy Growth Inc are currently benefiting from the increased valuation, one that we expect to keep increasing through to 2018.
With our outlook of the industry remaining positive and our expectations of high-profit cash-flow positive companies still lingering in our minds, we expect that this price trend will remain as is. The company will continue to exhibit its bullish outlook going into 2018.
Furthermore, given their prior value add and the backing they have received courtesy of the investment of Constellation Brands, there is nothing stopping TWMJF from rising further than it currently is at.
TWMJF represents one of the success stories in the market. The entity has invested heavily in a lucrative sector and is poised for success given their current financial path as well as deals with government institutions. Investment in the firm would be a step into future growth of the investor’s portfolio.
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Disclosure: We have no position in TWMJF and have not been compensated for this article.