Canopy Growth (CGC 10.74%) stock is marching higher Tuesday morning. As of 10:06 a.m. ET, the cannabis giant's stock is up by a healthy 22% on unusually high volume.
What's sparking this rally? Ahead of the opening bell, Canopy announced that it will create a U.S.-based holding company called Canopy USA to complete the proposed acquisitions of the multi-state operator (MSO) Acreage Holdings, the Colorado-based edibles company Wana, and the California-based cannabis extraction company Jetty. This move will reportedly accelerate Canopy's long-planned move into the high-value U.S. cannabis market.
Canada has not been a particularly fruitful market for cannabis companies since the country legalized recreational marijuana use among adults roughly four years ago. Underscoring this point, Canopy reported a staggering 2.1 billion Canadian dollar net loss in its 2023 fiscal first-quarter results earlier this year. And as a direct result, Canopy has been steadily closing its brick-and-mortar cannabis retail operations in Canada and ramping up its plans to dive into the large U.S. cannabis market.
The long and short of it is that the Canadian cannabis market is simply too small to support several large, publicly traded cultivators. The U.S. cannabis market, on the other hand, is forecast to break $50 billion in annual sales by 2026, which ought to be more than enough to support several cash-flow-positive cannabis companies in the back half of the decade. Armed with this insight, it's not surprising to see Canopy move forward with its U.S. expansion plans.
Is Canopy's stock a buy on this news? It's important to understand that this strategic move won't immediately result in Canopy morphing into a top-tier U.S. cannabis company. Acreage is a lower-rung MSO in terms of annual sales, and industry elites like Green Thumb Industries, Cresco Labs, and Trulieve Cannabis aren't going to give up market share without a fight. So while this news is a net positive overall, Canopy still has a lot of work to do to become a bona fide industry leader.