A: Canopy Growth Corp., $13.06, symbol CGC on Toronto (Shares outstanding: 114.7 million; Market cap: $1.5 billion; www.canopygrowth.com), is the new name for Tweed Marijuana (old symbol TWD).
The company’s shares began trading on TSX Venture Exchange on April 3, 2014. The shares graduated to the regular TSX Exchange on July 26, 2016.
Canopy is a licensed grower of medical marijuana in Canada. Its production facilities are in Smiths Falls, Ontario, and Park Lane Farms in Niagara-on-the-Lake, Ontario.
The company shipped its first product on May 5, 2014, from the Smiths Falls plant.
The company bought Park Lane Farms on June 18, 2014, for $2 million in cash and shares. Health Canada recently approved this facility as a licensed producer of medical marijuana, and Canopy has started production in its 350,000-square-foot greenhouse.
On August 28, 2015, Canopy acquired Bedrocan for $59.3 million worth of Canopy common shares. That firm operates a 52,000-square-foot marijuana production facility in Toronto. Bedrocan also has a licensing partnership with Dutch medical marijuana producer Bedrocan BV. It provides the Canadian firm with its exclusive strains of marijuana plants and its cultivation technology.
As a result of this purchase, Canopy’s revenue for the year ended March 31, 2016, was $12.7 million. That’s a big jump over its revenue of $2.4 million in the 15 months ended March 31, 2015. The company’s losses improved to $0.05 a share (or a total of $3.5 million) in fiscal 2016. That’s compared to $0.29 a share (or $9.3 million) in the 15-month period.
In the three months ended September 30, 2016, Canopy’s revenue soared 244.6%, to $8.5 million from $2.5 million a year earlier. That’s mainly because its Tweed Farms greenhouse in Niagara-on-the-Lake is now operating at full capacity. As a result, the company sold 1,169 kilograms of marijuana in the quarter, at an average price of $7.01 per gram. A year earlier, it sold 319 kilograms at $7.54 per gram.
Canopy earned $5.4 million in the quarter, up 38.2% from $3.9 million a year earlier. It recently sold 9.45 million common shares at $3.65 a share. Canopy plans to use the total proceeds of $34.5 million to expand its production facilities. These investments should also help it take advantage of Ottawa’s plan to legalize recreational marijuana use. Due to the extra shares outstanding, earnings per share were unchanged at $0.05.
Canopy sells into a limited and highly regulated market. As well, there are very low barriers to entry for new medical marijuana producers. If the market grows large and profitable enough, big producers, including tobacco companies, will likely enter the market and take sales away from small growers like Canopy.
As well, regulations are subject to constant change and uncertainty; for example, a Canadian federal court judge ruled earlier this year that marijuana patients could grow their own plants.
Longer term, the possibility of legalization of marijuana in Canada remains a considerable threat to licensed producers that depend on a heavily regulated market.
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