Let’s take a look at the current situation to see if the marijuana company deserves to be in your portfolio.
Continued Canadian expansion
Canopy is a very active and fast-moving company. It has to be, as competition continues to ramp up in the sector ahead of the October launch of the legal recreational pot market in Canada.
Canopy just announced a memorandum of understanding with the B.C. Liquor Distribution Branch to provide product for the British Columbian market. The company also recently entered supply agreements with Alberta and Manitoba. These deals bring the list to seven provinces and one territory for total supply commitments of 67,000 kilograms of product on an annualized basis.
The Canadian market is very important, with pundits estimating the value to be at least $5 billion per year, but investors who are considering Canopy should also look at the international ambitions, marketed under the Spectrum Cannabis Brand.
Canopy LATAM was just created to focus on capturing a significant share of the evolving medical marijuana market in Latin America. With more than 600 million people in the targeted region, the opportunity is attractive as Latin American countries adjust their cannabis regulations. The company announced it has acquired Colombian Cannabis and renamed it Spectrum Cannabis Colombia. The subsidiary will build new production facilities to supply product to the region.
Canopy already has research operations in Chile and plans to continue its strategy for the Brazilian medical marijuana market.
In Europe, Canopy will soon be able to supply the federally legal European market with product produced in the region, replacing shipments from Canada. Growing operations have begun in Denmark.
Spectrum Cannabis also has a presence in Australia and South Africa.
Canopy recently reported is fiscal Q4 2018 results. Fourth-quarter revenue came in at $22.8 million, representing a 55% year-over-year gain. Full-year fiscal 2018 revenue was $77.9 million, nearly double the previous year.
Canopy still isn’t profitable, reporting a net loss of $61.5 million for the quarter. The company finished fiscal Q4 with $323 million in cash.
The numbers reflect the company’s focus on getting ready for the launch of the Canadian recreational market.
Should you buy?
Canopy’s market capitalization of more than $7 billion is pretty steep for a company with $78 million in revenue and no profit, so you have to be of the opinion the company will grow into its valuation to buy the stock today.
Given the expected size of the Canadian recreational market and the global opportunities, the current price could prove to be a great entry point down the road, but I would stay on the sidelines right now, even after the recent pullback.
There are other high-growth opportunities in the market that might be better picks right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Walker has no position in any stock mentioned.