For the past two years, Canopy Growth Corp. (TSX:WEED) has been the preferred play, as investors anxiously anticipate profits in the soon-to-be minted Canadian recreational marijuana industry.
Investment bank CIBC World Markets predicts that within a few years, the industry will generate $5-10 billion in sales annually from plant sales alone.
That compares to 2016 sales of beer in Canada of $8.7 billion and does not account for additional business that will come from sales of ancillary products, such as fertilizers, grow lights, and not to mention tourism from outside nations.
Canopy shares have skyrocketed from $2 per share at the time that Canadian federal prime minister Justin Trudeau was elected in 2015 on the back of promises to legalize recreational pot.
Shares now trade just under $20 on the Toronto Stock Exchange.
While the “green rush,” a period where speculators bid up shares of medical marijuana producers like Canopy, is over, there is reason to believe that cannabis stocks still have room to run higher.
And while in years past, there was a lot that investors didn’t know about how federal regulations would take form, with a little less than six months to go until the expected legalization date of July 1, 2018, the picture is starting to become clearer.
Provinces will be responsible for the sale and distribution of the drug, similar to how alcohol is governed.
In Ontario, the task will be handled by a subsidiary of the LCBO and will include a publicly run, direct-to-consumer e-commerce platform that will see product shipped to customer’s homes via postal service or courier.
Yet the federal government has also made it contingent that if a provincially run distribution channel is not put in place, Canadians will be able to purchase pot directly from federal licensed producers.
This is an interesting development, particularly for Canopy, as the company has spent considerable time and effort over the past year developing its own e-commerce platform “Tweed Main Street.”
While there are considerable questions that remain to be answered, there is certainly no denying that e-commerce and online sales are increasingly becoming a staple of the retail marketplace.
The fact that Canopy has devoted as many resources as it has to develop an online platform certainly shows vision and a certain level of intestinal fortitude.
Canopy has, in fact, demonstrated a commendable amount of aggressiveness in the ramp-up towards legalization in spending what is necessary to ensure the company is taking a foothold of the market.
Notwithstanding several notable acquisitions over the past 12 months, the company has also been reaching out to international markets like Germany, Australia, and Chile, as those countries progress with their own plans to liberalize laws around the drug.
Canopy today is nearly twice the size of nearest competitors Aphria Inc. and Aurora Cannabis Inc.
This undoubtedly gives the company the distinct size advantage, which, if it plays its cards right, should lead to accretive acquisitions of some the industry’s smaller players, as the company continues its push to secure market share and commercial licenses, which could prove to be a valuable commodity down the road.
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Fool contributor Jason Phillips owns shares in Canopy Growth Corp.