It has been called the 800-pound gorilla in the room: Canopy Growth (NYSE:CGC), the world’s biggest weed company by market cap ($14 billion), industry presence and sheer volume of cannabis production. A weed leader and undisputed heavyweight champion of pot stocks, CGC stock was the very first cannabis company to list on the New York Stock Exchange and continues to be heavily traded in both Canada and the United States.
I suppose you could say it’s the Amazon (NASDAQ:AMZN) or the Apple (NASDAQ:AAPL) of cannabis stocks, but does that necessarily make Canopy Growth stock the best pot stock pick? After all, CGC isn’t exactly the cheapest one on the market, and you know the old saying: “The bigger they are, the harder they fall.”
Can It Get Any Bigger?
With a massive $4 billion capital infusion from alcoholic beverage mega-corporation Constellation Brands (NYSE:STZ), Canopy has more than enough capital and market share to dominate the Canadian weed space. While I can’t predict exactly how Canopy will use those funds, I expect that the company may invest in the fast-growing edibles space as well as the international pot market as there are more than 30 countries currently pursuing a medical cannabis program.
The counter-argument among Canopy’s critics is that a company of this size risks collapsing under its own weight. My reply is that just as the e-commerce space continues to grow (thus enabling Amazon to continue expanding), the global cannabis market has plenty of room to grow and Canopy Growth will, at least for the foreseeable future, have no shortage of new frontiers to conquer.
Still the Revenue King
Whenever I evaluate a company, one of my prime directives is: “Show me the revenues!” In the case of Canopy Growth stock there’s no shortage in that department, as the company’s recently reported fourth-quarter (ending March 31) net revenues rose to $71.37 million from $20.14 million a year earlier.
Of course, it could be argued that Canopy’s blockbuster revenue growth was driven by Canada’s legalization of recreational cannabis — and I won’t dispute that this was a contributing factor. Nonetheless, a more-than-threefold increase in revenues in the span of a year isn’t just the result of decriminalization: Canopy made a boatload of money during the past year, outpacing its competitors and vindicating Constellation’s outsized investment.
Several Steps Ahead
With the cannabis market moving forward at a breakneck pace, companies must now innovate just to remain competitive. Much like Constellation demonstrated its forward-thinking mind-set by investing in Canopy, there’s clear evidence that Canopy is also taking the necessary steps to maintain their bellwether position among weed firms.
For instance, when the company acquired medicinal marijuana producers in South America and Africa last year, CGC showed its dedication to expansion far beyond the North American borders. Moreover, when Canopy made the commitment in April of this year to acquire American cannabis company Acreage Holdings Inc. for $3.4 billion (under the condition that the U.S. legalizes production and sale of cannabis), Canopy Growth proved to its shareholders that it’s ready, willing and able to stake its claim on American soil.
I tend to concur with Jefferies analyst Owen Bennett when he opines that Canopy Growth’s purchase of the right to acquire Acreage is a “big positive” for the company. As I see it, Canopy is being highly proactive by not waiting for a federal ruling on marijuana law; the company’s preparing for American domination, come what may.
The Bottom Line on CGC Stock
Personally, I’m not overly concerned about how expensive the CGC stock price is today, tomorrow or next week. I’m focusing more on the fundamentals than anything else — and given the company’s deep capital reserves and forward-thinking mind-set, I like Canopy stock for a long-term allocation at practically any price.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.