The Canadian cannabis sector rose to new heights during the month of January. One of the leaders of this performance has been Canopy Growth Corp (TSX: WEED) (NYSE:CGC). The Ontario-based cannabis company’s stock price soared by more than 60% during the first month of what should be a golden year for pot stocks on the TSX.
Canopy’s rise might only be starting, though, and there are good reasons to believe the company’s share price could skyrocket even more. Let’s consider two reasons.
The U.S. legalizes hemp
It happened not long before the new year came around, on December 20 to be exact. President Trump signed the Farm Bill into law, which made it legal to grow hemp — a close chemical relative of cannabis — in certain states (provided the farmers acquire the appropriate license from the state).
Industrial hemp is used to extract a chemical known as cannabidiol, which has been linked with many health benefits. Hemp contains negligible amounts of the chemical found in marijuana known as tetrahydrocannabinol.
This new development is set to have a seismic impact on the cannabis industry in North America, and Canopy Growth is very well positioned to take advantage. Canopy recently announced it had entered the U.S. hemp industry, specifically in New York, where it obtained a license.
Canopy will invest between $100 million and $150 million to build a hemp industrial park. No doubt this investment will open more avenues for growth for Canopy, and the company will reap the benefits down the line.
Constellation Brands acquisition
Last year, alcoholic beverages giant Constellation Brands invested $5 billion in Canopy. The acquisition means Constellation Brands now owns approximately 38% of the cannabis company. Canopy isn’t the only pot company that has entered into a strategic partnership recently, and with good reason.
The value of doing so is obvious. Canopy now has substantial cash to tap into to make strategic investment and position itself into the growing cannabis market, as well as the marketing expertise of an internally recognized brand.
The bottom line
There are good reasons why pot stocks have been some of the most active on the TSX lately. The cannabis industry is still in its infancy. Canopy is currently one of the cannabis companies with the strongest market positions due to its ventures within U.S. territory and its partnership with Constellation Brands.
Canopy is not ignoring the rest of the world, though. The company’s wholly owned subsidiary Spectrum Cannabis — which is focused on international operations — recently entered Peru. All things considered, Canopy looks like a great buy at the moment.
