Canopy Growth Corp.([stock_market_widget type=”inline” symbol=”CGC” template=”basic” color=”default”]) saw its share price increase when trading opened on Thursday following its pledge to invest $500 million in U.S. hemp production.
The firm had previously announced plans to spend between $100 million and $150 million after securing a licence from New York State to process and produce hemp. Chief executive Bruce Linton told Yahoo Finance today that it now plans to ramp up the investment to $500 million by expanding into Rhode Island and two to three other states.
It opened at $44.90 on Thursday morning and the share price quickly increased to $47.88. That followed a superb January performance for the company, which saw its shares increase by 82.3%, significantly outperforming the index.
Canopy’s Ups and Downs in 2018
It followed a somewhat tumultuous 2018 that saw peaks and troughs. Constellation Brands, the alcoholic drinks producer that supplies beer brands like Corona and Modelo and a range of well-known wines, provided a $4 billion cash injection on Aug. 15, taking its stake in Canopy from 9.9% to 38%.
That led to huge gains, as the share price increased from C$32.15 to C$42.20 after the news broke. The rally continued and Canopy’s share price increased to a high of $73.75 on Oct. 15, before a sell-off forced it down to C$34.36 on Christmas Eve.
WEED Rallying in 2019
Yet the rally this year has been positively dreamy for investors and it is beginning to approach its all-time high once more. It increased to C$62.73 within 35 minutes of trading opening on Thursday and it shows no signs of slowing down.
News of it securing a license from New York State was the catalyst for its latest rally. Its plans to build an industrial park for hemp production in the next couple of years received positive feedback from analysts and investors. It cannot sell cannabis in the U.S., but it is entering the world’s largest consumer market through hemp following the passage of the Farm Bill.
Canopy’s Expansion Plans in the U.S.
Canopy has gained a key ally in Senator Chuck Schumer, who hopes to turn the state’s Southern Tier, which lies west of the Catskill Mountains along the northern border of Pennsylvania, into the “Silicon Valley of industrial hemp production and research”. Schumer sees industrial hemp as a true cash crop in the region and he called Canopy’s arrival a real shot in the arm for New York.
Linton has seemingly decided to double down on his plans to expand into the U.S. hemp production arena. Analysts at the Brightside Group estimate that hemp-derived CBD will become a $22 billion market by 2022, outpacing the cannabis industry. Markets across the globe are opening up for CBD and Canopy has its tentacles in many of them. Linton announced plans to approach hemp production on a state-by-state basis, saying he will focus on three or four states with “big populations and progressive leadership”. He then gave the following colourful quote: “
His strategic vision has certainly sparked confidence in the markets. Linton also went on to say that he cannot understand why shares are decreasing in Constellation, as “they own 37% of us and their stock traded down since they put the money in to almost make that free inside of a great business that sells Corona and all the wines that you want”.
Constellation (NYSE: STZ) supplies Robert Mondavi, Wild Horse Winery, Clos du Bois, Franciscan Estates, Kim Crawford, Meiomi, Mark West, Ruffino, and The Prisoner, among others. Alcoholic drinks producers are worried about losing “share of buzz” to the cannabis industry, so Constellation has gone with the if you can’t beat them, join them approach.
Canopy charges a premium price for its cannabis, but its production costs are higher than some of its rivals. Its liquidity is stronger than fellow Canadian large caps, as Grizzle estimates it has almost three years of cash left at current burn rates.
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