The Motley Fool

Canopy Growth Corp.: Will 2017 Be Another Blockbuster Year?

Canopy Growth Corp. (TSX:CGC) has gone from being a long-shot penny stock to a billion-dollar darling in the past 12 months.

Let’s take a look at Canada’s cannabis king to see where things could go next year.

Medical marijuana

Canopy is Canada’s largest supplier of medical marijuana. This area of the pot market remains the company’s core focus both in Canada and abroad.

In early November, Canopy revealed a major expansion strategy through a partnership with real estate specialist, the Goldman Group. The agreement will see Goldman acquire properties and build new facilities to Canopy’s specifications and then lease the sites back to the cannabis producer.

Canopy is also growing through acquisitions. The company recently announced an agreement to buy competitor Mettrum Health for $430 million in stock. A successful completion of the deal will create a dominant player in the medical marijuana space with 665,000 square feet of production facilities and give Canopy control of roughly 50% of the market.

Overseas, Canopy has acquired a German distributor and is making headway with its operations in Brazil.

In a quickly developing domestic and global market, it appears Canopy is making the moves necessary to ensure its position as a dominant medical marijuana player.

Easy cash

Canopy has used the high-flying stock price to raise significant cash in recent months. The latest deal is for $60 million in a bought-deal agreement to issue nearly 5.7 million new shares at $10.60 per share.

As long as investor appetite for the stock remains high next year, Canopy will continue to enjoy access to easy cash.

All eyes on Ottawa

Canopy currently sports a market capitalization of $1.25 billion. That’s an outrageous valuation for a business that generated just $8.5 million in third-quarter revenue.

What’s the attraction?

Investors are betting on Ottawa’s plans to legalize the sale of recreational marijuana, which some pundits believe is a market worth $6-10 billion per year.

The government just received its final report from a task force set up this summer to study how the sale of recreational marijuana could be rolled out across the country. Using the report as a starting point, the government hopes to have legislation ready by next spring, and investors in Canopy are betting on the market opening in 2018.

If that timeline holds true, the optimism might be warranted, and Canopy could potentially grow into its lofty valuation. This would set the stock up for a strong 2017.


There is a real possibility that legalizing the sale of marijuana on a national level could turn out to be more problematic than expected, and things might not move as quickly as planned.

Provinces and municipalities are going to want to share the tax revenue, because they know they will be responsible for managing the headaches that come with the program. That could set up a nasty battle in the coming months.

At the voter level, the city of Ottawa is already seeing strong pushback from residents who don’t want marijuana dispensaries setting up shop in their neighbourhoods. The Liberals don’t want this to backfire and result in a loss in the next election, so the roll-out could get dragged along for the next five years.

That’s how long it took tiny Uruguay to get through its legalization process.

As such, I would be careful chasing the stock at the current price. Any indication in 2017 that Ottawa is going to take more time than expected could result in a serious pullback in the cannabis sector.

Stock Buy Alert Hits Astounding 96% Success Rate!

The hand-picked investing team inside Stock Advisor Canada, recently issued a buy alert for one special type of “bread-and-butter” stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply click here to unlock the full details behind this new recommendation and join Stock Advisor Canada.

*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.

Fool contributor Andrew Walker has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.