Let’s take a look at the current situation to see if Canopy Growth deserves to be in your portfolio.
Through acquisitions and a savvy strategic plan, Canopy Growth has become a leader in the growing Canadian medical marijuana market, and continues to expand its presence. The company has leveraged its position by offering smaller competitors access to its online sales platform, ensuring more medical marijuana patients are exposed to Canopy Growth’s brands, while getting a piece of the action from non-customers and reducing the chances that upstart firms will join together to develop a competing digital sales presence.
As Canada is about to launch its recreational market, Canopy Growth is well positioned to take a large chunk of the sales. The company has supply agreements with a number of provinces and recently acquired Hiku Brands, which owns Tokyo Smoke, DOJA, and Van de Pop brands. Hiku was conditionally awarded four master licenses for retail sales in Manitoba and is recognized as a leader in the market for branded cannabis products.
In addition, the $5 billion investment in Canopy Growth by Constellation Brands last month cements the beverage firm’s commitment to the sector. Constellation now has a 38% interest in Canopy Growth and should be a leader in the anticipated market for cannabis-infused beverages.
Most investors are focusing on the Canadian market, but Canopy Growth sees significant opportunities worldwide. The company owns a German distribution company and has operations or partnerships set up in Australia, Denmark, Spain, Colombia, Chile, and Brazil, among others.
As governments around the world makes changes to their cannabis rules, Canopy is well positioned to benefit from growing medical marijuana sales, and potentially new recreational markets. Constellation Brands recently reiterated its confidence in the emergence of a global market.
At the time of writing, Canopy Growth trades at $68 per share, giving the company a market capitalization of about $15 billion. This is extremely expensive for a business that still isn’t profitable and that reported revenue of about $23 million in the most recent quarter.
The stock has been volatile this year, and investors should expect that trend to continue.
Is Canopy Growth the best marijuana stock to own?
Investing in any of the marijuana stocks requires a big leap of faith right now. You have to be of the opinion that the Canadian and global cannabis markets will unfold as expected so that these companies can grow into their valuations.
If you fall in that camp and can handle the wild ride, Canopy Growth is probably the best pick of the lot today. At some point, I think Constellation Brands will take a majority stake given the huge investment it has already made in the company.
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.