Canopy Growth Corporation will benefit from the legalization of marijuana

Investment idea by DTI

Exchange: NYSE

Sector: Healthcare

Industry: Drug Manufacturers — Other

Entry strategy

Price: $32,5—$41

Stop-loss: $24.3

Take profit: $56, then $75

Investment horizon: 1 year and more

Company details

Canopy Growth Corporation ($CGC) is the largest producer of medical marijuana in Canada. Earlier the company was known as Tweed Marijuana Inc. It changed its name to Canopy Growth Corporation in September 2015. The company’s headquarters is in Smiths Falls, Canada.

Canopy Growth is the leader in the industry. It controls more than 33% of marijuana supplies in the Canadian market. The company operates seven plants, more than 2.4 million square feet of production capacity and offices in nine countries (including Canada, Germany, Brazil and Australia).

The main products of the corporation are dried flowers, oils, concentrates, helium capsules with herbs and cannabis. Canopy Growth sells its products under various brands, including Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow и Foria.

Fundamental Analysis

The use of marijuana for medical purposes in Canada was legalized in 2001. On June 19, 2018, the Canadian Parliament approved a bill on the use of marijuana for individual consumption. Since mid-October 2018, it will be sold without prescription. As a result, Canada will become the third country in the world after Uruguay and Georgia (and the first one among the G7 and G20 countries) where recreational marijuana will be completely legalized.

The new law on legalization gives Canopy Growth Corporation the «first-move advantage» — the opportunity to gain a stronger position in the growing marijuana market. This will affect the future cash flows of the company and will be the main growth driver for the price of its shares.

For active expansion in the market, Canopy Growth Corporation successfully attracted capital. In August 2018, a major American manufacturer of spirits Constellation Brands, Inc., known for its trademarks Corona, Modelo and Pacifico, invested in the company.

Constellation Brands increased its stake in Canopy Growth from 9.9% to 38%. It bought additional 104.5 million shares at 48.60 Canadian dollars per share. The total amount of raised capital was about $5 billion. The funds will be used to develop a business — the production and sale of cannabis in Canada and other countries where medical marijuana is legalized.

Technical analysis (trading plan)

Graph 1. Technical analysis of Canopy Growth Corporation ($CGC) stock. 1 day. Source: TradingView — Open original image