Despite the arrival of Canadian marijuana legalization, Canopy Growth Corp (NYSE:CGC) is not resting on its laurels. CGC stock has nearly doubled in value over the past three months and continues to rise as the company completes yet another big deal, this time acquiring a U.S.-based hemp company.
In a press release, Canopy said that its acquisition of ebbu, LLC will “complement and accelerate” its already impressive line of marijuana products. (Source: “Canopy Growth to Acquire Assets of Colorado-Based Hemp Innovator ebbu,” Canopy Growth Corp, October 15, 2018.)
Canopy Growth will complete the purchase by paying CA$25.0 million and issuing 6,221,210 common shares to ebbu in exchange for ebbu’s assets.
These assets include ebbu’s progress and specialization in the purification and study of cannabinoids for product development, wholesale, and research purposes. This includes the use of plant genetics to maximize cannabinoid output via plant breeding.
“Intellectual Property (“IP”) and R&D advancements achieved by ebbu’s team apply directly to Canopy Growth’s hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities,” said Canopy Growth. (Source: Ibid.)
The Canopy-ebbu deal is an ideal fit for the two companies.
As the cannabis industry matures, companies that are able to gain a leg up in production capacity while keeping costs down will likely emerge as the dominant players. It’s simple economics: make more of a product that is in high demand at a cheaper rate, and your profit margins will soar.
Canopy’s expansion into hemp products also helps diversify the company’s product line. The thing about the marijuana industry is that it extends far beyond pot for smoking.
From hemp to CBD oil to medicinal uses, the marijuana industry holds a great many possibilities. As such, acquisitions that help a company expand into those varied subsectors are critical for long-term success.
The acquisition comes at an especially interesting time, as the October 17 legalization of marijuana in Canada is now here. The result is that the CGC stock forecast is as exciting as it has been all year, with a lot of developments able to create a run in share value.
CGC Stock Forecast
When it comes to stock forecasts, there are few companies that are as well positioned as Canopy Growth. The company has made a number of purchases this year that have solidified its status as the top player in the market.
Chart courtesy of StockCharts.com
This has culminated in strong CGC financials.
Canopy Growth saw first-quarter revenue of CA$25.9 million, which was a 14% increase from the previous quarter and a 63% increase from the previous year. (Source: “Canopy Growth Corporation Reports First Quarter Fiscal 2019 Financial Results,” Cision, August 14, 2018.)
The company also scored big with its average selling price per gram, hitting CA$8.94, up from CA$8.43 last quarter and CA$7.96 last year. This number helps track profit-per-gram production, making it one of the stronger metrics when comparing to rival companies. Seeing strong growth here is critical.
Canopy Growth stock has netted multi-year supply agreements in Canada, with annualized delivery requirements of over 67,000 kilograms.
Bruce Linton, Canopy’s chairman and co-CEO, said the following in a press release:
With our unparalleled success in Canada and Europe, Spectrum Cannabis’ expanding global operational footprint now covering 11 countries, our active regulatory and global market development efforts, as well as approvals to proceed with the first of many planned clinical trials of cannabis-based medical therapies for both humans and animals, our leadership position in international medical cannabis markets continues to strengthen.
Speaking of the CEO, a series of Bruce Linton interviews has been making the rounds, often followed by strong gains on the back of his comments.
The most recent interview of note appeared a few days ago from Jim Cramer’s Investor Boot Camp in New York. (Source: “Canopy Growth and Constellation Brands Say Cannabis Will Be a $200B+ Industry,” TheStreet, October 13, 2018.)
In the interview, Linton was joined by Constellation Brands, Inc. (NYSE:STZ) COO Bill Newlands.
Constellation Brands, of course, is the alcohol producer that has made a couple of major investments in Canopy Growth. The last one, in August, was worth around $4.0 billion and sent the entire marijuana industry on a massive run.
In fact, if you refer to the CGC stock chart, the majority of the stock’s gains came immediately after the influx of capital courtesy of Constellation Brands.
Newlands is very high on the marijuana market, as you would expect.
“Our view is that in the next 10+ years, this is going to be a $200 billion business worldwide. And some would argue [that’s] understating the case,” said Newlands during the interview. (Source: Ibid.)
That’s a massive projection that outstrips most other analysts’ projections.
Of course, Newlands has to be optimistic; his company owns a big chunk of the premier marijuana stock.
At the same time, it is entirely within the realm of possibility that the worldwide cannabis sector will rise to that level. This is based on the sheer variety of products and market segments to be tapped—from recreational pot smokers to CBD oil enthusiasts to hemp lovers.
And Canopy Growth stock has proven that it can register extremely strong, sustainable gains over a long period. As such, the CGC stock forecast for 2019 looks bright.
From Canopy Growth’s numerous intelligent acquisitions to its entry into a diverse array of markets, the company has a lot of potential for massive growth.
The company has positioned itself well to take advantage of a number of consumer markets, from cannabis-infused beverages via its Constellation Brands partnership to its interest in recreational pot across Canada.
In my mind, there is no better marijuana company on the market right now than Canopy Growth.
Not to mention that the company trades on the New York Stock Exchange (NYSE), making it one of a handful of pot stocks available on a major U.S. listing.
For all these reasons, my CGC stock forecast for 2019 has the company climbing by at least 50% next year, with the possibility of even higher gains being likely.