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Cannabis on the Stock Exchange: Canopy Growth Corp enters the Canadian Stock Exchange
Canada's largest cannabis company entered the country's main stock index Friday.
The idea that was floating around that cannabis would be the next 'big thing' is already confirmed. Last Friday, March 17th, after the markets closed, Canopy Growth Corp (which in this Thursday's session ended up appreciating 1,84% to 11,08 Canadian dollars on the Toronto Stock Exchange) - the largest manufacturer of the world's publicly traded marijuana, valued at 1,23 billion Canadian dollars – will be included in Canada's main stock index, the S&P/TSX Composite Index.
With sales of Cannabis recorded in North America that amounted to 6,9 billion dollars, in a market that was growing, at that time, 30% compared to 2015. A success achieved thanks to the fact that in almost half of the USA it is legal to use this drug for medicinal purposes.
In a market that could become even more valuable, when the promise of full legalization in Canada is fulfilled, which could be a reality later this year, will this company be prepared for the likely increase in demand?
“The question arises because analysts point out that Canopy Growth has not yet recorded operating profits.”, can be read in an article published by Jornal de Negó.
At first glance, the accounts of the listed company in the health sector are very good, but caution is needed, warn analysts. Despite recognizing that the shares of this Canadian company are 'winners', Seeking Alpha points out several problems in the company's results, in Matte's Micro-Cap Research. Namely the fact that the company showed a gross profit higher than the revenue.
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Another of the issues raised is the fact that the company uses as revenue the profit from assets such as drug seeds that have not yet generated the cannabis plant in order to generate a greater profit. Without this revenue, which in fact is not yet palpable, Canopy's growth has negative gross margins, guarantees the analyst. At stake is the valuation of unrealized assets, based on the development of plants from seed and the fair-value values that are being used in the accounts.
The company says that this item represents “the fair value of biological assets”. And many analysts continue to argue that this is a company and a sector worth betting on. The company's CEO and founder, Bruce Linton, says that entry into Toronto's highest index means the company is now "of age" and the future is bright. Canopy Growth Corp believes this step will help create new export markets and accelerate legalization in other countries. The growth is unlikely to be achieved across the US where, despite the fact that in eight states the use of cannabis is already fully legal, President Donald Trump has promised to tighten the rules on the use of cannabis for recreational use.
Last year Canopy, founded in 2014, was the first cannabis company in history to reach a valuation of more than 1.000 million dollars, a unicorn (a name for startups with so much potential that in a short time they can pass the barrier of XNUMX billion dollars).
Canopy is the world leader in cannabis, adding several brands and varieties of this drug as a dry extract and oil. Through its subsidiaries, the Canadian company operates in several production sectors and has facilities with more than half a million square meters of production capacity.
According to a recent report by ArcView Market Research, cannabis is “arguably” the fastest growing industry in the world. “Forecasts point to an annual growth rate of around 26%, reaching US$21,6 billion in 2021”, reads the same report.
According to Investopedia, several venture capital and private equity funds have already invested hundreds of millions of dollars in projects related to the sale of marijuana in the United States.
Starting Monday, investors will see this unicorn in the benchmark, with its well-known ticker “WEED”. Since the beginning of the year, Canopy has increased by 21,23%, currently worth 1,76 billion Canadian dollars (about 1,23 billion euros).
Image: Jornal de Negócios
Source: Reuters and Jornal de Negócios
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[Disclaimer: Please note that this text was originally written in Portuguese and is translated into English and other languages using an automatic translator. Some words may differ from the original and typos or errors may occur in other languages.]____________________________________________________________________________________________________
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I am one of the directors of CannaReporter, which I founded together with Laura Ramos. I am from the unique Island of Madeira, where I currently reside. While I was in Lisbon at FCUL studying Physical Engineering, I became involved in the national hemp and cannabis scene and participated in several associations, some of which I am still a member of. I follow the global industry and especially legislative advances regarding the different uses of cannabis.
I can be contacted by email at joao.costa@cannareporter.eu
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