As a long-time follower of cannabis stocks, I’ve long held the belief that the best long-term pick in the marijuana industry is Canopy Growth (NYSE:CGC). Multiple things factor into that belief. But, above else, it always comes back to the following: Canopy scored a $4 billion investment from Constellation Brands (NYSE:STZ) in mid-2018, and that $4 billion makes all the difference in terms of having the financial resources to grow into the global cannabis leader.
Fast forward to April 2019. Over the past eight months, Canopy has illustrated in a convincing way that $4 billion is a big difference maker in the marijuana industry. With that money, the company has expanded its growth footprint, rolled out new products, jumped into the U.S. market, made big acquisitions, further delved into overseas markets and extended its leadership position in the Canadian market.
In other words, Canopy is taking the $4 billion from Constellation Brands, and it is strategically using it to create a viable pathway for this company to one day become the Altria (NYSE:MO) or Anheuser-Busch (NYSE:BUD) of the global cannabis market.
Those companies have $100 billion-plus market capitalizations in the global tobacco and alcoholic beverage markets, respectively. The recreational cannabis market projects to be as large as those markets one day.
Add in the medical cannabis market, and the whole cannabis market should be even bigger than the tobacco and alcoholic beverage markets. As such, the Altira or Anheuser-Busch of cannabis will easily one day be a $100 billion-plus company.
Big picture? Thanks to an early lead, big resources and strong investments, CGC stock remains on track to be a $100 billion-plus company one day.
What Is CGC Doing With $4 Billion?
The global cannabis market is early stage. When it comes to early-stage markets, the key to success is investing to grow. The company best positioned to do that? CGC.
While a few other Canadian cannabis producers have scored some big investments from large consumer staples companies, none have scored anything like the $4 billion investment Constellation Brands made in Canopy. As such, CGC stock naturally has more investment firepower than anyone else in the industry.
But, investment firepower doesn’t mean much unless you invest wisely. CGC has done just that. Just take look at all these investments, partnerships and expansions Canopy has made in the past month alone:
- Canopy partnered with new Canadian cannabis brand Houseplant, which is led by Hollywood stars Seth Rogen and Evan Goldberg.
- The company launched a new production facility that projects to increase annual cannabis output by 5,000 kilograms.
- The company also acquired AgriNextUSA, a U.S. hemp company that projects to help Canopy grow its presence in the U.S. hemp market following the passage of the 2018 Farm Bill.
- Canopy has extended partnerships with cannabis brands Hollyweed and DNA Genetics.
- The NHL Alumni Association has teamed up with Canopy to research CBD and its potential use as a concussion treatment.
That’s all in the past month. Go back eight months, and you’ll see all the same stuff, at eight-fold the volume, with the recurring themes being cannabis-brand partnerships, production facility expansions, CBD research collaborations and U.S. market-specific growth initiatives.
In other words, CGC is utilizing its unparalleled investment firepower to make strategic investments, partnerships and expansions that best position the company to maintain and even extend its global cannabis market leadership.
Cannabis Market Leadership Is a Valuable Position
The global recreational cannabis market best parallels to the global tobacco and alcoholic beverage markets. All three substances are loosely classified and perceived as largely benign “drugs,” and consumption of all three is very prevalent today.
The only difference is legality. But, trends are already moving in favor of legal cannabis worldwide. When that happens, current consumption trends imply that the global cannabis market will be as big as the global alcoholic beverage and tobacco markets. Each of those markets has produced several $100 billion-plus companies. Thus, the recreational cannabis market projects to produce several $100 billion-plus companies, too.
That’s not even considering the medicinal side of this market, which many think will be larger than the recreational market.
Consequently, it’s easy to see that whoever turns into the global cannabis market leader, will ultimately be a very big, very valuable company. Right now, the most likely pick to be that leader is CGC. Considering that the company still has roughly $3 billion in cash on the balance sheet, it seems likely that CGC will remain the most likely pick to be the global leader for a long time.
Bottom Line on CGC Stock
Canopy Growth stock has been the best pick in the red-hot cannabis sector because of a $4 billion investment from Constellation Brands, which gave the company unparalleled investment firepower to extend its market leadership position.
The company has done just that, and with $3 billion still left on the balance sheet, this growth narrative is still in its first few innings.
As of this writing, Luke Lango was long CGC stock.
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