Canopy Growth Corp. (TSX:WEED) has given back all of its 2017 gains, and investors who have been waiting for an opportunity to buy the stock are wondering if this is the time to buy.
Let’s take a look at Canada’s leading medical marijuana company to see if it deserves to be in your portfolio.
Rapid growth
Canopy is Canada’s top player in the budding medical marijuana market, serving roughly 50,000 registered patients.
Management has done a great job of moving quickly to secure production capacity and consolidate the market as the industry works its way through the early stages of its growth.
Through acquisitions, including the important takeover of Mettrum Health, Canopy has become the dominant name in the Canadian medical marijuana space. In addition, the firm has forged key partnerships to ramp up its expansion efforts.
For example, Canopy is working with the Goldman Group to scale up production capacity in a way that enables Canopy to get the production capacity it needs as quickly as possible without tying up too much capital in the process.
Under the deal, Goldman will buy or build facilities and outfit them to meet Canopy’s production requirements. In turn, Canopy will lease the sites from Goldman.
The Canadian market is the prime focus, but Canopy also realizes there are solid opportunities overseas. The company purchased a pharmaceutical distributor in Germany, has a partnership in Brazil, and signed a memorandum of understanding with Namaste Technologies, which sells vaporizer and accessories through more than 25 e-commerce stores in 20 countries.
Canopy continues to create new business models in the evolving sector. Through the CraftGrow program, the company’s Tweed Main Street online marketplace will allow smaller producers to reach a larger market without having to build their own sales and service platforms.
Canopy also recently announced the creation of Canopy Rivers, which will be a cannabis streaming and strategy support platform.
Should you buy?
Canopy’s stock is back down to $8.70 per share, which is certainly more attractive than the $12 investors were paying in February.
However, the company still has a market cap of $1.4 billion, making the stock very expensive based on the revenue generated through the medical marijuana market.
So, investors have to decide if they want to pay up for the potential opportunities that are expected to come with the opening of a recreational cannabis market in Canada in 2018.
If you believe the provinces will be able to hit the July 1 target date next year to launch the recreational market, starting a contrarian position on further weakness might be worthwhile.
For those who think the provinces won’t be able to get their ducks lined up for another couple of years, it might be a good idea to stay on the sidelines and wait for a better entry point.
