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Canopy Growth Corporation (WEED.TO: TSX) (TWMJF: OTC)
Canopy Growth is by far the largest and most diverse licensed Canadian medical marijuana producer. The company is comprised of several wholly?owned subsidiaries and has increased its reach by making investments and acquisitions of companies all over the globe. Canopy Growth was the first publicly traded licensed Canadian medical marijuana producer and is levered to the emerging and rapidly growing medical marijuana market in both Australia and Germany.
Through the acquisition of two licensed Canadian medical marijuana producers, Bedrocan Cannabis in 2015 and Mettrum Health Corp in late 2016 (closed in 2017), Canopy Growth has significantly increased its market share in Canada.
We are favorable on Canopy Growth Corp due to the following reasons:
- It is the largest and best capitalized medical cannabis producer
- The company continues to execute on its initiatives and work toward creating value for its shareholders
- Management has a proven track record of success
- The company continues to report earnings that show improving fundamentals
- Its balance sheet is flush with cash and leaves the company flexible and able to expand through both organic and inorganic growth initiatives
2017 Fiscal Results Are In
Today, Canopy Growth reported its financial and operating results for the fourth quarter and 2017 fiscal year. The company recorded very strong growth during the quarter and we expect to see continued growth as the company continues to expand and increase market share all over the globe.
Canopy commenced its international expansion in 2016 with investments in Australia, Brazil and Germany. The company’s subsidiaries also exported medical cannabis to Germany and Brazil
During the quarter, Canopy recorded a $21.1 million net loss (inclusive of the IFRS accounting for biological assets) on $14.7 million in revenue. Although the loss seems significant, it includes non-cash expenses and we are favorable on the revenue growth, which was 50% higher than the prior quarter and 191% higher than the same period last year.
Canopy recorded a significant increase in the average price per gram sold and we are favorable on this trend. The company also continued to see its expenses decrease as a percentage of sales and this trend has helped support margins and the bottom line.
Canopy’s balance sheet continued to strengthen and as of March 31st, it reported to have $101.8 million in cash and cash equivalents and approx. $60 million in inventor and biological assets.
At the end of the quarter, Canopy had 8,360 kilograms of dry cannabis and 3,049 L of cannabis oils. Included in the dry cannabis quantities was 377 kilograms available for sale in its online stores, 3,173 kilograms in process of finishing or awaiting approval for sale, and 4,810 kilograms held for extraction.
While the net loss and weaker margins are significant, the reasons behind the drop make sense and are not impactful for future numbers. Canopy Growth has a very strong balance sheet and the company has been able to penetrate new international markets. We expect to see these factors support growth going forward
We expect to see Canopy Growth continued to expand its presence across the globe and expect to see significant growth on a quarter-over-quarter basis. We are favorable on these numbers and Canopy’s position as a global cannabis leader.
A Global Cannabis Leader
In April 2014, Canopy Growth became the first cannabis company in North America to be publicly traded. The company followed was also the first to diversify its platform to include both greenhouse and indoor growing, to acquire a major competitor and to be listed on the Toronto Stock Exchange, and the only cannabis company to be a member of a major global stock market index (S&P/TSX Composite index).
Canopy Growth was the first to introduce the now standard concept of compassionate pricing to make medical cannabis affordable for patients, and continue supporting a patient’s right to grow at home by selling the widest variety of seeds in the sector. It was also the first Canadian producer to be approved to export dried cannabis to Germany.
In the June update, Canopy reported to be the first company to start selling softgel capsules in Canada which are produced at its Smiths Falls campus. Canopy recently introduced its first Craft Grow partner product into the Tweed Main Street store, which serves over 58,000 customers with 31 available products.
Growth Continues to Accelerate in Germany
In late November, Canopy Growth entered an agreement to acquire MedCann GmbH Pharma and Nutraceuticals, a German-based pharmaceutical distributor that has placed Tweed-branded cannabis strains in German pharmacies. MedCann is federally licensed by the German Health Ministry to import, manufacture and distribute medical cannabis products.
Although Germany began to permit patient access to medical cannabis in 2005, domestic production does not currently exist. MedCann is an attractive acquisition candidate and has already proven its ability to navigate Germany’s complex regulatory environment for importing and distributing cannabis. The company’s experienced management team has established itself as a leading cannabis importer and distributor within Germany where the cannabis industry relies solely on imported products. Canopy Growth’s German subsidiary, Spektrum Cannabis Germany GmbH has now distributed cannabis products to over 480 pharmacies across Germany, up from 200 pharmacies in April 2017. Spektrum’s facility in Germany is GMP certified.
Worldwide Growth Opportunities
Canopy Growth has a greater breadth of multi-site management than any other cannabis company in the world. In addition to previously announced work in Brazil through its strategic partnership with partially-owned Entourage Phytolab, and its minority stake in AusCann Group Holdings, Canopy Growth has also entered the Chilean cannabis market.
Spectrum Cannabis, a new International medical brand that will serve as Canopy’s physician and patient-facing identity in strictly medical markets outside North America. Based on the intuitive color-based system that has served to position Mettrum as an approachable cannabis brand in Canada that attracted thousands of patients, Spectrum will focus on physician interactions, stakeholder outreach, and patient education.
Spectrum Chile will complement Canopy’s expansion into South America with Spectrum Chile SpA. Medical markets in Chile are emerging and Canopy Growth plans to enter the market aggressively to position itself as a leader in the Chilean market. Through a strategic partnership with a domestic Chilean medical cannabis company, Spectrum Chile will work to ensure Chilean patients have access to high-quality cannabis products.
A Stock Investor Must Watch
We are favorable on Canopy Growth and we continue to view the company as one of the most attractive cannabis investments available. The company is well capitalized and led by a management team that continues to impress investors.
Although the shares have fallen a significant amount from its highs, Canopy Growth has bounced off its lows and the shares are trending higher. Cannabis investors should keep an eye on Canopy Growth as we expect to see the company benefit off positive legalization trends in Canada.
Important Investor Disclosures
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Source: Technical 420