Canopy Growth Corp: Acquisitions to Fuel the Next Round of Growth
CGC Stock Remains a Top Pot Stock
Because Canopy Growth Corp (NASDAQ:CGC) is one of the most prominent names in the Canadian cannabis industry, investors may find it too obvious to be exciting.
After all, Canopy Growth was the first pot producer to be listed on the New York Stock Exchange, and if you’ve been following the company long enough, you’ll know that Canopy Growth stock has gone through several roller-coaster rides in recent years.
But that doesn’t mean investors should move on to the lesser-known tickers. While some smaller pot companies may be churning out faster growth rates, Canopy Growth Corp is a name that pot stock investors simply cannot ignore.
Allow me to explain.
Headquartered in Smiths Falls, ON, Canada, Canopy Growth offers a wide range of products to cannabis consumers, including dried flower, oil, softgel capsules, beverages, edibles, topicals, and vaporizer devices.
As mentioned earlier, this diversified cannabis and cannabinoid-based consumer product company is listed on the New York Stock Exchange. In its home country, Canada, it trades on the Toronto Stock Exchange under the ticker symbol “WEED.”
Canada legalized recreational cannabis nationwide in October 2018, marking the first G7 country to do so. As you’d expect, the market grew very quickly.
Along the way, Canopy Growth managed to establish a very strong presence in the Canadian market. In fact, the company has the No. 1 market share of the total marijuana flower category in Canada. (Source: “BofA Securities Consumer & Retail Technology Conference,” Canopy Growth Corp, March 9, 2021.)
While it’s been more than two years since Canada legalized pot, the market has the potential to become much bigger.
For one, fewer than 50% of Canadian consumers say they buy pot in legal dispensaries, so the transition from the illicit market to the legal market should be a catalyst for legal operators.
Second, Canopy Growth Corp offers a variety of cannabis-infused edibles, vapes, beverages, oils, and topicals. These so-called Cannabis 2.0 products can attract new consumers. (Source: Ibid.)
And even though Canopy Growth already has a preeminent position in the pot industry, it has been expanding its presence through strategic acquisitions.
Earlier this year, the company acquired AV Cannabis Inc, better known as Ace Valley. It’s one of the leading cannabis brands in Ontario, with a strong focus on ready-to-enjoy products. (Source: “Canopy Growth Completes Acquisition of Leading Ontario-based Cannabis Brand Ace Valley,” Canopy Growth Corp, April 1, 2021.)
Ace Valley’s stock-keeping units (SKUs) complement Canopy Growth’s product portfolio of premium vapes, pre-roll joints, and gummies. Canopy Growth can leverage its top-tier sales, marketing, and distribution capabilities to scale the Ace Valley brand across the country.
In June, Canopy Growth announced that it had completed the acquisition of Supreme Cannabis Company Inc. The deal strengthened Canopy Growth’s brand portfolio by adding two of Canada’s leading premium and ultra-premium brands, “7ACRES” and “7ACRES CRAFT COLLECTIVE.” (Source: “Canopy Growth Completes Acquisition of Supreme,” Canopy Growth Corp, June 23, 2021.)
The acquisition of Supreme Cannabis Company also brings a premium, low-cost and scalable cultivation facility in Kincardine, ON to Canopy Growth’s production capabilities. Management believes the acquisition will lead to immediate value creation. Over the next two years, the combined company is expected to achieve cost synergies of CA$30.0 million.
As mentioned earlier, some investors may prefer small companies because they have the potential to deliver faster growth. But here’s the thing: while Canopy Growth Corp is one of the heavyweight players in the business, its growth numbers are nothing to sneeze at.
According to its latest earnings report, Canopy Growth generated CA$148.4 million of revenue in the fourth quarter of its fiscal year 2021, which ended March 31. The amount represented a 38% increase year-over-year. For the entire fiscal 2021, the company’s revenue totaled CA$546.6 million, up by 37% from its fiscal 2020. (Source: “Canopy Growth Reports Fourth Quarter and Fiscal Year 2021 Financial Results,” Canopy Growth Corp, June 1, 2021.)
That said, I’m not saying Canopy Growth is perfect. The company incurred net losses in its fourth fiscal quarter and its full fiscal 2021. But due to the company’s cost-saving efforts, things could get much better in the near future.
According to Canopy Growth Corp’s chief financial officer, Mike Lee, the company’s cost-saving program is set to deliver $150.0 to $200.0 million in savings within the next 18 months.
“…we remain committed to our path to profitability by the end of Fiscal 2022, while continuing to invest in an organization that is focused on insights, innovation and gaining momentum in the U.S. market,” said Lee. (Source: Ibid.)
Canopy Growth Corp (NASDAQ:CGC) Stock Chart
Chart courtesy of StockCharts.com
Like many pot stocks, Canopy Growth stock gained a lot of investor attention during the meme-stock frenzy early this year. Its share price went parabolic in early February, but it has pared most of its gains since then.
Right now, CGC stock seems to be consolidating. It’s trading at a similar level as it was last November.
Considering Canopy Growth Corp’s potential to unlock revenue growth opportunities and cost synergies from its recent acquisitions—as well as its profitability target for the end of the current fiscal year—pot stock investors might want to give Canopy Growth stock a second look.