Canopy Growth Corp: Why CGC Remains a Top Pick for Pot Stock Investors

Canopy Growth Corp Why CGC Remains a Top Pick for Pot Stock Investors
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Canopy Growth Stock Deserves Investor Attention

The marijuana industry is filled with new entrants. And this shouldn’t come as a surprise. Given how fast the industry has been growing, a lot of companies want a piece of the action. As a result, there’s no shortage of small-cap pot stocks with promising outlooks.

But not every new entrant to the sector will become a future winner. For risk-averse investors who want to get some exposure to the pot boom, it might be worthwhile to check out the more established players in the industry. These companies tend to have scale already, and will likely experience less uncertainty compared to a marijuana startup.

Canopy Growth Corp (NYSE:CGC) happens to be one of the most established pot stocks. Headquartered in Smiths Falls, Ontario, Canada, Canopy Growth is a diversified cannabis and hemp company.

The company has medical marijuana operations in more than 12 countries on five continents. At the same time, it is a leader in the Canadian recreational marijuana market, having secured supply agreements totaling over 70,000 kilograms (154,324 pounds) of cannabis a year. (Source: “Driving the Global Cannabis Industry,” Canopy Growth Corp, last accessed July 25, 2019.)

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The reason why many investors like smaller companies is that they tend to grow faster than the more established ones. But in the case of Canopy Growth, the company still churns out very impressive growth rates despite already being one of the biggest players in the business.

In CGC’s fiscal-year 2019, which ended March 31, the company generated CA$226.3 million of net revenue. This marked a whopping 191% increase from what it earned in the prior fiscal year. (Source: “Canopy Growth Corporation Reports Fourth Quarter and Fiscal 2019 Results With Annual Sales of $226.3M,” Canopy Growth Corp, June 20, 2019.)

Notably, the company earned CA$78.9 million in global medical marijuana sales and CA$140.5 million in Canadian recreational pot sales.

During its fiscal-year 2019, Canopy Growth harvested 46,927 kilograms (103,456 pounds) of cannabis, which more than doubled the 22,513 kilograms (49,633 pounds) produced in its fiscal 2018.

In the same period, Canopy Growth sold 24,320 kilograms (53,616 pounds) of cannabis, representing a 179% increase year-over-year.

Growth is just getting started at this cannabis producer. Management expects that, in the first quarter of Canopy Growth Corp’s fiscal-year 2020, the company will be able to harvest about 34,000 kilograms (74,957 pounds) of marijuana in Canada.

In this day and age, most cannabis companies are focusing on increasing their production and selling more weed. And as we just saw, Canopy Growth has done a good job at that.

But the company has also been quietly digging its own economic moat. Canopy Growth already holds 90 patents, has filed more than 240 patent applications, and has many more under development.

These patents are related to all aspects of the cannabis industry, such as  beverage production, device and delivery technologies, large-scale processing, plant genetics, and therapeutics. (Source: “Driving the Global Cannabis Industry,” Canopy Growth Corp, op. cit.)

These patents may not seem like a big deal for the industry right now, but in the long run, they could help Canopy Growth maintain its competitive advantage.

Canopy Growth Corp (NYSE:CGC) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Due to the pullback in weed stocks in recent months, the upward momentum in Canopy Growth Corp’s share price seems to have slowed down a bit. Keep in mind, however, that CGC stock is still up more than 30% year-to-date.

And if business grows as planned and the company maintains its entrenched market position, I wouldn’t be surprised to see Canopy Growth stock trading at higher prices as the cannabis industry further expands.