Canopy Growth Corp. (TSX:WEED) is quickly becoming my top pick in the cannabis industry, as the company continues to make moves that bolster its dominant position in this emerging market. The hangover is definitely over now, and the euphoria among investors will likely send shares of WEED to new highs in the months ahead.
Up to three million square feet worth of production capacity to be developed
More recently, the company announced its plans to develop three million square feet worth of greenhouse capacity in British Columbia, which, when combined, will dwarf the 800,000-square-foot Aurora Sky greenhouse developed by Aurora Cannabis Inc. (TSX:ACB), which was previously one of the most ambitious growth projects in the cannabis space.
One of the reasons I was bullish on Aurora (aside from its impressive operational efficiency results thus far) was the fact that its massive production facility would be the largest of its kind, giving it a massive edge over the competition once legalization day arrives across the nation.
Many pundits agree that there’s going to be a huge lack of supply in the few years following cannabis legalization. This is a gigantic opportunity for each cannabis producer to ramp up production to capture a larger slice of the pot pie. Canopy’s three million square feet in combined capacity would likely deliver triple-digit growth numbers that many of us growth investors couldn’t even fathom.
Canopy’s ambitious ramp up
Canopy entered a joint venture agreement with a greenhouse operator, which will make it a majority shareholder of BC Tweed Joint Venture Inc., a separate company. Canopy is expecting to spend ~$20 million in the development of a 1.3-million-square-foot greenhouse with the intention of having it operational by Canada Day 2018, when cannabis is expected to become legalized.
Canopy will also have the option to expand its capacity to 2.3 million square feet should management decide to acquire the space from its partner in what could be an all-share deal. In addition, there are other expansion opportunities available, which would make Canopy’s production capacity much larger than that of its peers.
When all is said and done, approximately three million square feet worth of capacity will be developed in the near term, with options to expand beyond this over the medium term. Canopy has a supply deal in place, and it’s ready to seriously ramp up its growth.
Bottom line
Canopy CEO Bruce Linton has given hints on televised interviews that such massive development projects may be in the works. Not only is Canopy the king when it comes to branding initiatives and establishing relationships with foreign and domestic partners, but with the greenhouse development underway, it appears that Canopy is well positioned to become the market leader in the entire cannabis sector.
Previous concerns such as tainted marijuana are completely forgotten at this point. Canopy is the real deal, and growth investors would be wise to gradually scale into a position to minimize the great deal of risk that comes with explosive growth stocks in emerging markets.
I believe the surge following Canopy’s development plans were completely warranted, and I think it could be the start of a sustained rally to much higher levels.
Stay smart. Stay hungry. Stay Foolish.
