Canopy Growth (CGC -4.82%) is Canada's market-share leading producer of marijuana, and with its medical marijuana market share of nearly 30%, it's perfectly positioned to profit from the upcoming grand opening of Canada's recreational market this summer. If Canada's plans go off without a hitch, then investments in production should allow Canopy Growth to reward investors with significant growth over the coming years.
What's the story
Canopy Growth is a fast-growing marijuana company that's positioning itself to profit from legalization in Canada and other non-U.S. markets.
A national medical marijuana company with significant growing capacity, Canopy Growth sells 45 marijuana products through its Tweed Main Street online store, including dry flower, oils, and soft gel capsule products.
The company boasts 600,000 square feet of licensed indoor and greenhouse production space, and according to management, it has more licensed in-production square feet than any of its competitors in Canada. It also has plans to develop an additional 5 million square feet of space, which it believes will allow it to meet potential demand when Canada's recreational market opens in July.
When that happens, Canopy Growth's sales are likely to increase significantly, but the company's latest quarterly earnings report shows that it's already enjoying rapid growth thanks to growing demand from Canada's medical marijuana market.
Specifically, the company sold a record 2,330 kilograms and kilogram equivalents last quarter, up 87% year over year and 15% quarter over quarter. It pocketed an average $8.30 Canadian per gram in the quarter, up from $7.36 Canadian last year, and thanks to unit volume and pricing power, its sales increased 123% year over year and 24% quarter over quarter to $21.7 million Canadian.
Even better days may be coming
The rapid increase in Canopy Growth's sales is in large part due to the number of registered medical marijuana patients it serves more than doubling in the past year to 69,000.
The increase in Canopy Growth's customer count may only be the tip of the iceberg, though. It should serve significantly more people when Canada's recreational market opens for business this summer. In anticipation of that happening, Canopy Growth's been significantly increasing its production capacity, stockpiling inventory, and taking steps to make sure its marketing is on point.
Last quarter, it harvested 7,961 kilograms, up from 4,167 kilograms in the previous quarter, and as of December 31, it's amassed a dried marijuana inventory worth more than $108 million Canadian. Canopy Growth is going to continue adding to its stockpile ahead of Canada's recreational market opening, but management says it already has more harvested inventory on hand than any of its competitors.
Initially, the company expects most recreational sales will occur online, but in preparation for retail demand, it's begun opening brick-and-mortar stores under its Tweed Main Street Shops banner. It also sold a nearly 10% stake in itself to Constellation Brands (STZ 0.14%), a global beer, wine, and spirits company, last fall so it can leverage its marketing know-how and, eventually, create marijuana-infused beverages.
Overall, it remains to be seen how big the recreational market in Canada will be, but Canada's medical marijuana market suggests that a lot of money is at stake. Health Canada reports that the number of patients enrolled in its medical marijuana program already exceeds 235,000, and that by 2024, there will be 450,000 patients in its program. Those estimates have Health Canada thinking that the medical marijuana market alone will be worth 1.3 billion Canadian in 2024.
The recreational market should dwarf that, though. According to number-crunchers at CIBC World Markets, Canada's recreational cannabis market could be worth between $5 billion to $10 billion per year, depending on per gram prices. If they're correct, then Canada's recreational marijuana market will eventually be about as large as its beer market.
More opportunities exist
Canada's not the only country where legal cannabis is advancing, either. According to Canopy Growth, there are at least 20 federal governments that "have formally legalized medicinal cannabis access to either foster research into cannabis-based medical treatments and/or toward increasing legal access to medical cannabis for their citizens."
Global interest in legalization suggests that companies that participate in global markets early on could reap billions of dollars per year in annual sales. Eager to take advantage of that potential opportunity, Canopy Growth has already inked deals that give it exposure to Germany, Australia, and Brazil. It's also positioning itself so it can serve other markets, including Chile, Denmark, and Spain.
Overall, the global cannabis market could be worth $180 billion over time, according to Eight Capital, and that projection could mean that while Canopy Growth's biggest short-term opportunity is in Canada, its biggest long-term opportunity could be in becoming the globe's leading marijuana maker. For this reason, I think Canopy Growth could be the best marijuana stock for investors to buy now.