Canopy Growth Corp (NYSE: CGC) is having an incredibly strong start to the trading session this morning after the Labor Day holiday. The gains are ultimately for a very good reason. Investors are getting ready for massive revenue growth due to legalization of recreational cannabis in Canada. However, if you think the stock is done rising now, you are likely mistaken. Today, we’ll talk about:
- Why Canada’s recreational market is sending CGC through the roof;
- why the gains are just beginning in my opinion; and
- what we’ll be watching for ahead.
CGC Could Become The Leader In The Canadian Cannabis Market
At the moment, cannabis companies in Canada are working to take their share of a market that will be emerging in October of this year. That’s because, on October 17, 2018, Canada will legalize marijuana for adult use. Currently, there are three big contenders in the space. Those include CGC, Tilray (TLRY) and Cronos (CRON). While all three players have cemented solid positions as suppliers to retailers in Canada, Canopy Growth is on the verge of becoming the leader.
The company, like TLRY and CRON, is already a major player in the Canadian medical marijuana space. Like Tilray and Cronos, the company has also cemented important supply agreements for the adult-use market in Canada. However, digging into these supply agreements shows that CGC is the leader thus far. At the moment, the company has supply agreements in Quebec, Ontario, Nova Scotia, and many more provinces. In fact, due to these supply agreements, its products will be in provinces that represent more than 70% of Canada’s population. So, it’s hard to argue that their brand isn’t going to be one of the largest and most recognized, if not THE LARGEST and MOST RECOGNIZED in the Canadian adult-use cannabis space.
To give you an idea of the size of this market, there are several estimates with the most widely accepted suggesting tha tthe retail cannabis market in Canada will generate $5.7 billion in revenue in the first year. However, estimates range from $4 billion to $9 billion. If CGC does take a sizeable portion of this market, it would mean a massive increase in revenue for the company.
My Bullish Opinion Goes Far Further
While the Canadian market is an important one, my bullish opinion on Canopy Growth is based on much more than Canada. In fact, a key market is going to be the United States. Currently, CGC, like TLRY and CRON, is a global company, but also like its rivals, it is not in the United States. Ultimately, this has to do with Federal legalities.
None of these companies CAN operate in the United States at the moment because it would be breaking Federal laws. While plenty of cannabis companies are taking advantage of recreational and medical markets in the States, these companies are not publicly traded, and couldn’t be because of the fact that they are breaking the law.
However, like Colorado proved to be a big success, leading to other states in the Union deciding to legalize recreational adult-use marijuana, success in Canada could lead to a change in Federal legalities right here in the United States. With such a big industry, tax dollars in the sector are likely to be tremendous. Canada will also serve as a study to see how consumers react to recreational marijuana. Will more or less people use it? Will kids be more apt to trying it? Will there be an increase in medical events or car accidents? All of these questions are about to be answered.
As an advocate for the use of marijuana in medicine, my studies have led me to the conclusion that the answers to all of these questions will be positive. Yes, more tax dollars will be made. Believe it or not, less people will use cannabis as the alure of going against the grain is taken away. In fact, less kids are trying marijuna at early ages in recreationally legal states in the United States. I expect that the result on this will be the same in Canada as well.
So, for me, Canada isn’t just important as a market opportunity, it’s important as a massive, real-life study with regard to legal marijuna use on a national level. Because my view is that marijuana has a positive, not negative, impact on society, I’m expecting that Canada’s legalization may lead to legalization of cannabis for recreational use within the next 4 to 5 years in the United States.
The Opportunity Is Tremendous
While the opportunity in Canada is big at around $5.7 billion/year in revenue expected to be generated, the US market is far larger. Some even argue that the market will grow to more than $20 billion in the early 2020’s. Should legalization in the United States take place, CGC Will be able to use everything it learns as it tackles a legal cannabis market in Canada to go after the largest market in the world! All the while, I’m expecting that while we wait on the United States, growth in the Canadian cannabis market will keep investors happy, leading to further gains.
What We’re Seeing From The Stock
It seems as though I’m not the only one that has caught onto the potential opportunity here. Canopy Growth has been flying in the market as of late, as has Cronos and Tilray. Today is no different. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (11:03), CGC is trading at $48.91 per share after a gain of $3.19 per share or 6.98% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on CGC, TLRY and CRON. In the short term, we’ll be watching for the launch of the Canadian cannabis market and the revenue growth we see as a result. On a more long-term level, we’re interested in following the movement to legalize cannabis in the United States on a Federal level. Should this decision be made, CGC is likely to fly and TLRY as well as CRON won’t be too far behind. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breask!
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