You pretty much couldn’t lose money investing in weed stocks over the last month, but while the little guys are jumping in multiples, the bigger players have been rocketing too. I’ve doubled my money on Aphria (APH.V) over the last few months, but the moves being made by Canopy Growth Corporation (CGC.T) cannot be ignored.
Canopy moved up significantly today, making it Canada’s first billion-dollar weed company. This shift is mostly down to the interest re: Canada moving to full recreational weed sometime soon, and Canopy’s ability to represent as the biggest player among large companies (like, say, the nation’s pharmacy chains) looking to distribute consistent brandable product. But it’s also got a lot of buzz due to its long time position as the company closest linked to the ruling Liberal Party, as founding player Chuck Rifici held a high position among that group, and current management seem well connected
Canopy’s business is big and growing, and they’re moving into enough directions to make it more likely they’ll eventually be considered ‘Big Weed’ than play for a high priced exit as an acquisition of ‘Big Pharma’ or ‘Big Tobacco’ down the road.
But that’s all future play. Right now, the market proper isn’t big in Canada, marketing is almost impossible, and patient numbers, while growing, are a long way from billion-dollar justifiable.
If you believe the industry is about to open wide, and that the biggest players will get the best seat at the table, there’s probably a lot of value left in Tweed’s stock, even at $9 (it was between $3 and $4 for most of the last year), as new rules would likely come without advanced notice.
But the same applies to Aphria, Mettrum, Aurora, Supreme. Emblem is hitting the market soon and promises to be in big demand as it catches up to recent valuations. Cannabis Royalties promises to rule the value-added space, both in the US and Canada, when it too comes live.
A billion-dollar weed company though. In Canada. Imagine if someone had proposed that to you as a likelihood in 2013. You’d have said they were nuts. If someone had said it in 2014, it would have raised eyebrows.
Tweed (as it was back in the day) made a lot of first mover mistakes and raised way more money than it should have to cover them. It struggled and bounced and promised and delayed, but it also eventually delivered. It is now what it set out to be – the biggest dog in the kennel. For a long time, people in the business said, “Canopy’s market cap is crazy,” and they were right. A $300 million market cap for 5000 patients was never a set of numbers that made sense.
But as a billion-dollar TSX stock, it has strength that others can’t match and it will ruthlessly acquire as it sees fit. Others will have to be more nimble, better with their money, and more creative to catch up, or even keep up, but Canopy will be able to stomp and monster and shove competitors about at will. It’s got the high stack at the final table. When it needs to go all-in, others will fold.
This makes the company, in my opinion, finally worth the market cap it has achieved. It moves from ‘big but overvalued’ to ‘big and likely to get bigger.’
— Chris Parry
FULL DISCLOSURE: Never owned it, but that may change..