While our competitors over at The Motley Fool have been urging caution on Canopy Growth Corp, we here at Insider Financial have been telling investors that Canopy was on the verge of a breakout. Both articles came out when Canopy was trading around C$7. With Canopy now above $11 after delivering a blockbuster second quarter, it’s safe to say which site offers the best cannabis coverage for investors. Canopy is now Canada’s first C$1 billion plus pot stock.
It’s easy to see why Canopy has become Canada’s first billion-dollar unicorn in the cannabis space. Canopy aims to be “a world-leading diversified cannabis company, offering diverse brands and curated cannabis strain varieties in dried and oil extract forms. Through its wholly-owned subsidiaries, Tweed, Tweed Farms, and Bedrocan Canada, Canopy Growth operates three state-of-the-art production facilities with over half a million square feet of indoor and greenhouse production capacity. Canopy Growth has established partnerships with leading sector names in Canada and abroad.” The company trades in Canada under the symbol CGC, in the US under TWMJF, and 11L1 in Germany. As you can see from the charts, Canopy has been on a spectacular bull run.
Canopy’s second quarter was strong on all fronts. Revenue for the second quarter ended September 30, 2016 was C$8.5 million compared to revenue of C$2.5 million in the three months ended September 30, 2015 and C$7.0 million for the first quarter of fiscal year 2017. Revenue in the six months ended September 30, 2016 totaled C$15.5 million as compared to C$4.2 million in the same period last year. Canopy had over 24,400 registered patients at September 30, 2016 compared to over 16,600 at June 30, 2016 and over 6,200 at September 30, 2015.
The total grams sold during the quarter ended September 30, 2016 was 1,169 kilograms and kilogram equivalents at an average price of C$7.01 per gram, up from 984 kilograms and kilogram equivalents at an average price of C$7.09 per gram in the first quarter of Fiscal 2017 and up from 319 kilograms sold during the three‑month period ended September 30, 2015 at an average price of C$7.54 per gram. Year‑to‑date, the Company has sold 2,153 kilograms and kilogram equivalents at an average price of C$7.05 per gram compared to 535 kilograms at an average price of C$7.62 per gram in the six months ended September 30, 2015.
Net income for the quarter ended September 30, 2016 was C$5.4 million or C$0.05 per basic and diluted share, including a non-cash unrealized gain on changes in the fair value of biological assets of C$16.1 million. In the comparative period last year, net income was C$3.9 million or C$0.06 per basic share and C$0.05 per diluted share, including a non-cash unrealized gain on changes in the fair value of biological assets of C$12.5 million. As of September 30, Canopy had C$45.4 million in cash, representing an increase of C$30.0 million from March 31.
In our opinion, the highlights of the quarter were the strong patient growth, its large cash position, and exporting Tweed-branded medical cannabis for sale to German patients for the first time. Canopy’s goal is to become a cannabis multinational and a player on the global stage wherever cannabis is legal. Last week, Canopy received approval to begin using its new breeding area at 1 Hershey Drive in Smiths Falls, Ontario. Consisting of several breeding rooms, phenotyping rooms, and male and female plant rooms that are nestled far away from the flowering rooms, the breeding complex has been specially designed to isolate pollen and male plants from the remainder of the facility.
This is the first such facility in the industry and will position Tweed as the only licensed producer capable of breeding new products to specific cannabinoid profiles. In addition, Tweed has had a further three rooms approved as Schedule 3 rooms where cannabis can be present. These rooms will make overall product life cycles more efficient. Across its three licensed production sites, Canopy subsidiaries are now licensed for 13,500 kg of dried cannabis production and 6,700 kg of cannabis oil production, representing over 7 million ml of finished cannabis oil. President Mark Zekulin said:
“This breeding area now allows Tweed to launch two projects core to its vision of offering Canadians the most variety and options in the sector. First, working with our world class partners, we can begin breeding new varieties uniquely available in the Canadian regulated market. Second, as part of our commitment to supporting a patient’s right to grow at home, we can now begin large-scale production of seeds for the legal Canadian market.”
Going forward, the recreational market in Canada will be the next catalyst for Canopy. Canopy has been providing input into a federal Task Force on Marijuana Legalization and Regulation that is expected to release preliminary info by the end of this month. The recreational market in Canada is estimated to be worth $7 to $10 billion and is expected to open sometime in the spring of next year. Canopy plans to capture a large share of this market by partnering with Snoop Dogg. Leafs by Snoop will soon be available in Canada exclusively to customers registered with Tweed. For a company looking to be the dominant player in the recreational market, there isn’t better name recognition than Snoop Dogg in the marijuana space. Overall, Canopy remains one of the must-own stocks in the cannabis space.
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Disclosure: We have no position in Canopy Growth Corp and have not been compensated for this article.