Canopy Growth (NASDAQ:CGC) (TSX:WEED), one of the Canada’s largest cannabis LPs, announced its intent to enter the U.S. cannabis market, by setting up an agreement to acquire Wana Brands upon federal legalization. Canopy’s NASDAQ listing rallied 8.5% on the news. After hitting an all-time high of $56.50 per share last February, the company’s stock has been on a downtrend and currently trades in the $12-$14 price channel. (See Canopy Growth’s stock charts on TipRanks)
Based on past performance, both financially and stock price, I would rate Canopy Growth as bullish, but recently the overall market has been a bit bearish on cannabis stocks. I current rate the company as a neutral buy and recommend that investors watch the company’s developments. The target price on Canopy is between $15 and $41 per share.
Wana Brands and the Agreement with Canopy
The Wana group consist of Mountain High Products, Wana Wellness, and The Cima Group. Wana and Mountain High both operate out of Colorado. Wana manufacturers and sells cannabis infused gummies, tinctures, and candies in the medical and recreational markets, while Mountain High produces cannabis-infused lollipops and lozenges. Wana has its brands in twelve states and plans to expand its footprint to twenty. It sells its brands in Canada via a licensing partnership with Indiva (TSE:NDVA)(NDVAF), a Canadian cannabis LP.
Canopy Growth has the option to buy 100% of outstanding membership interests of each Wana Entity. The company will pay US $297.5 million up front to have the option to acquire the companies upon U.S. federal legalization of cannabis. Until that time, Canopy will not have any controlling or financial interests in Wana.
Canopy has made similar agreements recently to acquire the U.S. MSOs (multi-state operators) TerrAscend (TRSSF) and Acreage Holdings (ACRHF). The company will have a large U.S. footprint in the cannabis markets after the time of legalization. Tilray (TLRY), another large Canadian cannabis LP, made a similar deal recently with U.S. MSO MedMen (MMNFF) (TSE:MMEN).
Canopy’s Current Business Operations
Canopy is one of the largest Canadian cannabis LPs in terms of market cap, revenue, and market reach. The company operates in the Canadian medical and recreational cannabis markets by growing and manufacturing a large array of cannabis products and brands. The company has a presence in the German cannabis medical markets and sells CBD products in the U.S. and Canada. It has additional operations selling cannabis vaporizer products and sports health products.
Canopy recently acquired Supreme Cannabis Company, a Canadian cannabis LP, and Ace Valley, which produces a variety of cannabis products including CBD and THC pre-rolls, vapes, and gummies. Through these acquisitions and through its own brand expansion, Canopy has added 50 new SKUs (stock keeping units) and plans for 100 more. The company’s recent brand innovations include a focus on single strain products, the addition of quickies or tiny pre-rolls, and a variety of gummies.
Canopy Will Release Q2-2022 Quarterly Reports Next Month
For Q1-2021, the company reported C $136 million in revenues, which amounts to a 23% increase from the last year’s quarter. The number has decreased from the last quarter (Q4-2020), which was C $148 million. The company showed a net income of C $389.96. The net income came from the change of value of various warrants and was not a cash income. The company usually reports a net loss.
The company’s largest revenue segment is its adult recreational cannabis sales, both business-to-business and business-to-consumer. The company second largest revenue segment is from selling vape products through its company, Storz & Bickel. Canopy also has generous revenue streams from Canadian medical cannabis sales, Germany medical cannabis sales, U.S. and Canadian CBD product sales, and health product sales. The company’s estimated revenue for Q2-2022 reports is around C $150 million.
Wall Street’s Take
According to Wall Street, Canopy Growth has a Hold consensus rating, based on 8 Holds and 1 Buy assigned in the past three months. At $20.73, the average Canopy Growth price target implies 55.28% upside potential.
Conclusion
In conclusion, Canopy Growth is well positioned to enter the U.S. cannabis markets. The company announced its intent to acquire Wana Brands upon U.S. federal legalization. Canopy also plans to acquire US MSOs TerrAscend and Acreage Farms under similar agreements.
The company already enjoys revenue streams in the U.S. CBD market. Canopy recently acquired Supreme Cannabis and Ace Valley, thus expanding its Canadian cannabis market share. The company reports Q2-2022 results next month and expects revenue reports to increase. I rate the company as neutral because of its stock price downtrend and recommend that investors watch developments from the company.
Disclosure: At the time of publication, Alan Sumler had a position in Canopy Growth, Tilray, Indiva, MedMen, and TerrAscend.
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