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Only A Fool Would Sell Canopy Growth Corp (TSE:WEED)(OTCMKTS:TWMJF)

Only A Fool Would Sell Canopy Growth Corp (TSE:WEED)(OTCMKTS:TWMJF)
Written by
Alex Carlson
Published on
March 14, 2017
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InsidrFinancial

Our competitors over at The Motley Fool just can't seem to help themselves. There's a reason they're called Fools and not to be taken seriously, although they do keep trying. They're back again warning investors that a crash is imminent in Canopy Growth Corp (TSE:WEED)(OTCMKTS:TWMJF). We here at Insider Financial beg to differ and believe that there's no sign of Canopy's bull run slowing down. Each pullback in the past has been a discount entry opportunity for cannabis investors ahead of a move to new highs.This isn't the first time we've been on the opposite side of The Motley Fool. Last year, The Motley Fool was urging caution on Canopy Growth Corp, while we here at Insider Financial had 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 back above C$11, it’s safe to say which site offers the best cannabis coverage for investors. After all, the charts do speak for themselves.This upward momentum is set to continue now that index funds that track the S&P/TSX Composite Index will be buying Canopy. Canopy will be the first cannabis company to be included in the prestigious index. Canopy was added to the S&P/TSX Composite Index following a quarterly review by S&P Dow Jones Indices. The change will be effective after the close of trading on Friday, March 17, 2017.To be eligible for inclusion on the S&P/TSX Composite Index, securities must meet certain market capitalization, liquidity and domicile requirements. In addition, securities must be listed on the Toronto Stock Exchange for at least six full calendar months as of the month-end prior to the applicable quarterly review. Chairman & CEO Bruce Linton said:

"Being added to the index is an important accomplishment and a reflection of the work we've done to put Canopy Growth top of mind in the investment community. With international operations, high profile partnerships, and expansion plans all developing rapidly, being included in the index acts as another layer of credibility investors can point to."

Last month, Canopy put out its Q3 numbers and they were impressive. Canopy posted revenues of C$9.8 million in the third quarter, a 15% increase over second quarter fiscal year 2017 and a 180% increase over the prior year period. Canopy ended 2016 with over 29,000 registered patients compared to 8,000 at the end of 2015. Net income of C$3 million compared to a net loss of C$3.3 million in the prior year. During the third quarter fiscal 2017, Canopy Growth sold 1,245 kilograms and kilogram equivalents at an average price of C$7.36 per gram, up from 462 kilograms at an average price of C$7.34 per gram during the prior year period. Revenue year-to-date in fiscal 2017 totaled C$25.2 million, an increase of 230% over the prior year period when revenue was C$7.7 million.Well then, why is The Motley Fool saying Canopy is going to crash? They're saying it's because of the Mettrum acquisition and product recall. There are a number of reasons why this logic is flawed. First, Canopy Growth did not even own Mettrum when this happened. Second, when Canopy did find out, it reacted swiftly just like Johnson & Johnson did with Tylenol in the 1980s. Third, Health Canada has correctly categorized the recall as a Type III voluntary recall, meaning "not likely to cause any adverse health consequences." Fourth, Mettrum products available today have been tested at third party labs over and above Health Canada's requirements, including rigorous testing for pesticides. Fifth, a detailed process map has been established at Mettrum to change growing and quality assurance processes throughout the production cycle, bringing practices in-line with existing operating procedures at Tweed and Tweed Farms.We believe that the Mettrum issue has been dealt with in an appropriate manner. Yes, ambulance chasing lawyers will sue the company, but Canopy will defend itself vigorously. We feel any damages awarded will be minimal because Canopy was not at fault in anyway. Matter of fact, there were 723 other health product recalls administered by Health Canada in 2016. Mettrum was not the only brand affected. Lastly, keep in mind what Canopy's end goal is. It's to be the dominant cannabis company in Canada. Chairman & CEO Bruce Linton summed this up when he said:

"Amidst all the changes brought about by the Mettrum acquisition, we must not lose sight of why we acquired Mettrum in the first place. First off, increasing our ability to service the medical cannabis market (and potentially the future recreational market) will require a great deal of production capacity. Adding existing, operational sites with significant room to expand capacity are essential for our growth. More importantly, our company has long held the view that brand and product diversity matter to us."

Currently trading with a market cap of C$1.77 billion, we at Insider Financial have been proven right on Canopy Growth Corp time and time again. This time we expect to be no different. Outside of index funds buying Canopy, there are a number of upcoming catalysts to keep the bulls in charge. This includes March numbers that include Mettrum, federal recreational marijuana legislation in Canada (spring time), German cannabis market opening up, and gel caps. This is why only a Fool would listen to another Fool.We will be updating our subscribers as soon as we know more. For the latest updates on WEED/TWMJF, sign up below!Disclosure: We have no position in WEED/TWMJF and have not been compensated for this article.

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