We appreciate the investor messaging efforts that management of CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) is making.
TWMJF has put out a number of announcements since we last covered it here on September 21. We looked into those announcements and a few of them caught our attention, so we decided to highlight them in today’s piece and also point out how we see them impacting the stock.
We’ll get into the details in a moment, but first take a look at TWMJF’s share price action below.
For a quick recap, TWMJF is up 18.8% since we published our last report on the stock. Over the last one month the stock has risen more than 35%. We see more momentum building in TWMJF and that’s why we’re talking about the stock again.
For the sake of our readers who are getting to know TWMJF now, we’ll briefly review the company’s business model.
TWMJF is a licensed cannabis producer based Canada – a country on the verge of expanding its cannabis market with legalization of cannabis/marijuana for adult or recreational use. TWMJF operates through subsidiaries that produce a range of medical marijuana products for distribution in Canada and abroad. The company’s cannabis products come in the forms of oils, softgel and dried substance.
TWMJF describes itself as the world’s largest producer of regulated cannabis.
On October 5, Valens GroWorks Corp, the parent company of Valens Agritech Ltd., announced that it signed a supply and sales agreement with TWMJF. This means that Valens’ products will be added to TWMJF’s CraftGrow distribution network. For a little background here, CraftGrow is a distribution program that is designed to accelerate speed to market for newly licensed cannabis producers. CraftGrow provides brand and product exposure to partners by distributing their products to the market’s largest group of actively registered customers. For TWMJF, CraftGrow program enables it to provide its customers with a wide variety of cannabis products. As such, CraftGrow is a way for TWMJF to enhance customer experience.
Commenting on the addition of Valens to the CraftGrow program, Mark Zekulin, the president of TWMJF, stated:
“We welcome Valens to the Canopy Growth family and look forward to collaborating with their team to provide a steady and high-quality source of cannabis products to increase product variety for our customers.”
Why do we find this announcement interesting?
We’ve noted that some commentators are raising the alarm over TWMJF’s swelling product inventory, which creates the risk of the company running into a supply glut situation that could destroy prices and slow revenue growth. TWMJF’s revenue grew 127% year-over-year to $15.9 million in fiscal 1Q ended June 30, 2017, while the value of its inventory (unsold products), rose to $65.5 million from $46 million in the prior quarter (quarter ended March 2017).
Rising inventory may signal that a company is struggling to find market for its products. But we don’t see that as the case with TWMJF. The question is why would TWMJF be adding more inventories by bringing more partners to CraftGrow program when it is having a problem finding a market for its supplies? In the contrary, we view TWMJF’s action as demonstrating that the management is confident about the availability of market for the company’s supplies.
Perhaps the expanding inventory could be a sign that TWMJF is building stock in anticipation for a strong demand in the near future, and there’s a high possibility this could be the case. Canada is on track to federally legalize recreational cannabis by July next year. This would dramatically expand the country’s regulated cannabis market, and renowned brands like TWMJF could be overwhelmed by demand when that happens.
On September 28, TWMJF announced that it entered into a distribution agreement with Skinvisible Pharmaceuticals. The agreement makes TWMJF the exclusive distributor of Skinvisible’s patented topical formulations in Canada, and an opportunity to be the exclusive distributor of the products in all other countries including the US and China.
We view this agreement as favorable to TWMJF as it comes at a time of growing demand for topically delivered cannabis. As such, this arrangement should position TWMJF better to capitalize on the expanding global regulated cannabis market.
Regarding the agreement with Skinvisible, Zekulin, the president of TWMJF, commented that:
“Moving forward, cannabis product diversity will be increasingly important, and this agreement prepares us for future product opportunities on that side of our business, if and when the regulatory environment evolves.”
Finally, we appreciate the efforts that TWMJF is making to capitalize on the potentially lucrative Eurozone regulated cannabis market. On September 21, the company announced that it was establishing a joint venture with Danish Cannabis to serve Denmark’s emerging cannabis market.
Danish parliament passed legislation to legalize medical cannabis and sales of medical cannabis in the country is set to commence on January 1, 2018. As such, an important market is about to open up for TWMJF in Europe.
The favorable developments we’ve noted have the potential to attract more buyers into TWMJF, thus putting upward pressure on the stock price.
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Image courtesy of Robert Martin via Flickr
Disclosure: We have no position in TWMJF and have not been compensated for this article.