The past two days have been amazing for the shareholders of the world’s largest commercial marijuana producer and distributor of cannabis: Canopy Growth Inc (NYSE:CGC).
Over this period, the company has received an endorsement of a lifetime through the additional investment of CAD $5 billion – or US $4 billion – by Constellation Brands (NYSE:STZ); a Fortune 500 company focusing previously in the alcoholic beverage sector – see our first piece on their investment here.
As a result, the share price of the marijuana producer has soared by a near 30% from its previous price oscillating between $24 and $25 to their current price of $32.11 as seen in the chart below:
The above speaks to the great value proposition which the company has sold to the market through their latest announcement, a proposition which we will evaluate over the course of this piece. Furthermore, we will seek to break down the expected use of the funds so as to understand the company’s strategy going forward.
Canopy Growth Inc: Then and Now
Before taking a look at their strategy, we need to review the history of the company so as to bring first-time readers up to speed.
The company was formed back in 2014 and headquartered in Vancouver, Canada. Like most firms back then, their incline was towards medical marijuana. However, given the current global shift in the marijuana landscape, they have diversified their portfolio and are looking towards targeting recreational marijuana users, first in Canada then across countries which have adopted it or which are working towards its adoption such as Germany.
Till now, the company has built a robust network which enables them to cultivate, produce and distribute their product to different countries. Through this, they have grown enough to achieve the status of largest cannabis producer in the globe. This is cemented by their $5.3 billion market capitalization which is by far the largest within the cannabis sector.
With all the above said, Canopy Growth is on an upward path, one which, given their current announcement, seems to be going even higher.
Our last analysis of CGC – which you can read here – spoke to the company’s strong financial performance being the key to unlocking their value proposition. Back then, they had just announced their annual financial results and their revenues had by far outdone the expectations by analysts.
Over this article, we also established CGC’s key competitor to be Aurora Cannabis Inc (OTCMKTS:ACBFF) with there being few other competitors in sight. However, it also became clear that the latter is still a few miles behind them as CGC has put significant funding into their production capacity – which is expected to hit 230,000 kilograms per annum this year – which is still way ahead of any competitor.
From the above, it is clear that CGC is a cannabis giant. Therefore, upon this backdrop, we can now review what will happen now that CGC has finally received the arsenal it needed to further boost their dominance over the global cannabis market.
Fresh Capital and More Acquisitions
Just yesterday, Constellation Brands announced that they would be putting more money into CGC.
This follows their initial investment of US $245 million for a 9.9% stake in the company. At present – given the high valuation of CGC – they are working at bringing in US $4 billion for 104.5 million shares so as to increase their stake to 38%. This would make them the largest shareholder in the company. Constellation Brands CEO, Rob Sands stated that he had witnessed the dominance of CGC in the market and had, over the past year, witnessed the massive growth which the cannabis industry is experiencing. As a result, he believed that the higher investment would ensure that their growth potential, as well as their dominance, was exerted on the market.
On the other hand, CGC has also made a few plans.
Bruce Lincoln, the Chief Executive Officer of CGC, has been strong at expressing his interest in industry dominance. Thus far, his interest is in the Canadian space where he is working towards ensuring they have both invested heavily and acquired a number of players. He states that:
“Our target acquisition list is over $1 billion. We’re on acquisition number nine so far.”
His vision for Canada’s market is that their market share far outweighs that of any other competitor. Furthermore, he believes that through this, they will be able to outpace their competitors in Europe, a market which he believes will be their next big catch.
With the above view on scale, partnerships and growth, it comes as no surprise that CGC’s shares went up by the double-digit percentage. The company’s well-defined goal and their renewed financial muscle will be a major source of their impetus as they strive towards industry dominance and eventual growth into international waters.
With all said and done, CGC has set itself up as a force within the cannabis sector. Their growth strategy is strong and the moves they are making are sure to ensure that they achieve this. All in all, the company is already poised to be a dominant player in the industry and soon, across the globe.
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Disclosure: We have no position in CGC or STZ and have not been compensated for this article.