A piece of news came across my computer recently that should be welcome for those who own Canopy Growth (NASDAQ:CGC) stock. The company continues to have a sizable impact in the Canadian cannabis market. Up around 36% year-to-date, CGC stock has what it takes to keep moving higher.
Here’s why:
Canadian Cannabis Continues to Gain Acceptance
I live in the Canadian province of Nova Scotia. There’s a major cannabis industry near me, with New Brunswick’s Organigram Holdings (NASDAQ:OGI) leading the way.
Anyway, the Nova Scotia Liquor Commission (NSLC) revealed its third-quarter sales on Feb. 16. The 1 million people of Nova Scotia spent a lot of money on alcohol and cannabis during the quarter.
“‘Customers’ purchasing patterns continue to change with the pandemic,’ said Greg Hughes, the President & CEO of NSLC.
Wine, spirits, and beer saw year-over-year sales increases of 9%, 12.9%, and 4.9%, respectively. Ciders and coolers, albeit a smaller piece of the overall pie, had a 53% increase in sales during the quarter.
Why am I telling you this information in an article about cannabis and Canopy Growth? Two reasons.
Constellation Brands Made the Right Call
First, cannabis is the fourth leg in Constellation Brands’ (NYSE:STZ) growth plans. Repeatedly over the past two years, I’ve recommended that investors consider buying STZ stock as a risk-adjusted way to play Canopy Growth. To date, Constellation shareholders haven’t benefited from Canopy Growth’s rebound.
But they will.
Secondly, it’s important to understand that cannabis continues to gain a seat at the table. The NSLC’s experience here in Nova Scotia is a microcosm of what’s happening in larger Canadian provinces such as Ontario, Alberta, and British Columbia.
In the NSLC’s third quarter, cannabis sales were 22.2 million CAD ($17.4 million), 27.5% higher than a year earlier. They accounted for 10.6% of the commission’s overall sales of 210 million CAD ($165 million).
During the quarter, retail cannabis transactions were up 2.6%. More importantly, the average transaction size was 41.48 CAD ($32.59), 24.2% higher. This, despite the average price per gram falling by 23% to 7.58 CAD ($5.96).
“This growth in cannabis sales indicates we are making progress in fulfilling our mandate to impact the illicit market with a safe, secure supply of cannabis,” said NSLC’s CEO.
A decade from now, I could see cannabis sales passing wine sales in the province, which is indicative of an industry finally gaining traction with consumers.
What This Means for CGC Stock
The chatter for most of 2020 was that Canopy Growth and the rest of the Canadian operators were fighting over a smaller pie than what America was dishing out. As a result, many suggested that the homegrown multi-state operators (MSOs) maintained a major advantage over the Canopy’s of the world, who were on the outside looking in.
However, as I look at the NSLC’s website, I can find lots of Canopy products available.
And it’s making inroads across Canada.
“Our overall share is up 30 basis points to 15.7% in Q3 versus Q2, and we’ve regained the No.1 market share position in the Canadian rec market during Q3, based on our proprietary market share tracker,” stated Canopy Chief Executive Officer David Klein in its Feb. 9 earnings call.
In addition, Canopy is making major inroads in cannabis-infused beverages, an area of the cannabis market that in my estimation has greater long-term potential.
InvestorPlace’s Luke Lango recently discussed why investors should buy CGC stock on the correction post-earnings. As Lango said, Canopy’s business continues to trend in the right direction, with sales up double digits both year-over-year and sequentially.
As for margins, Luke points out that Canopy’s grown its gross margins for three straight quarters. The business continues to get stronger. Not to mention it’s sitting on 1.6 billion CAD ($1.3 billion), or 962 million CAD ($757 million) after subtracting short-term and long-term debt.
It’s a nice spot to be. Canopy Growth remains the pride of Canadian cannabis; it’s the gold standard by which all others are judged.
It’s a buy for the next decade or longer.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
