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The Zacks Analyst Blog Highlights: Canopy Growth and Tilray

Zacks Equity Research

For Immediate Release

Chicago, IL –August 9, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Canopy Growth Corporation CGC and Tilray Inc. TLRY.

Here are highlights from Thursday’s Analyst Blog:

2 Marijuana Stocks to Buy Heading Into Q2 Earnings and Beyond

The marijuana industry is projected to grow at an annual rate of about 17% until it reaches $55.8 billion a year in 2025. The cannabis market has roughly tracked the S&P 500’s expansion in 2019. A popular ETF representing the cannabis market, called Alternative Harvest (MJ), is up 13.2% YTD, while the S&P has climbed 13.6%.

Industry Outlook

Marijuana is not yet federally legal in the U.S., although it is many some states and Canada. Cowen estimated in an April 2018 report that the global cannabis industry rested at about $50 billion annually, including black-market channels.

With many 2020 presidential candidates supporting federal legalization, or at least easing of marijuana restrictions, it seems likely that legalization will come within the next few years. If this happens, a large portion of the black market will theoretically move to the legal market.

Cannabis is already recreationally legal in 11 states, D.C., and Canada, and a bill in Congress was recently passed by the House to prevent federal authorities from interfering with state legalizations. It is also medically legal in 33 states and D.C.

Data suggests that consumers will treat federally legalized marijuana like alcohol, as a collaborative study published by three universities showed that alcohol sales decreased by 15% where medical marijuana is legal. This is good news for the cannabis industry, because if it could imitate the $250 billion U.S. alcohol industry it will end up in a great spot.

Let’s take a look at some promising cannabis stocks reporting earnings in the next week and see how they look on the growth front.

Canopy Growth Corporation

Canopy is a cannabis company headquartered in Smith Falls, Ontario that produces a large selection of products. The company is vertically integrated and operates in every stage from growing marijuana to retail. It is currently the largest cannabis company in the world with a market cap of $11.2 billion. The stock has shot up 350% in the last 2 years but has dropped off from its highs recently.

Constellation (STZ) brands in August 2018 purchased 38% of Canopy for $4 billion. This gave Canopy some much-needed capital to expand and become an international company, and exposed the Corona and Modelo maker to the emerging cannabis market.

Canopy also signed a deal in April that gave the company the right to buy Acreage Holdings for $3.4 billion, contingent on the U.S. federally legalizing marijuana. This will be a huge deal for Canopy if completed, as Acreage has operations and dispensaries in many U.S. states, which would give Canopy instant access to the U.S. market. The thought being that Canopy wouldn’t have to spend time building out operations in the U.S. and risk losing market share in the process.

Canopy currently holds a Zacks Rank #3 (Hold) and very impressive growth estimates. CGC reports earnings after close on Wednesday, August 14.

Our Zacks Consensus Estimates call for year-over-year top line growth of 327.9% that would see it hit $86 million. Estimates for Q3 call for 530% gains over Q3 2018 to reach $112.46 million. Full year revenue growth is projected to surge 198% to $511.48 million, with fiscal 2020 revenue expected to hit $1.02 billion.

Tilray Inc.

Tilray is a pharmaceutical and cannabis company headquartered in Toronto. It went public last July and produces and sells medical and recreational marijuana. Tilray stock is up 87.2% since its IPO, but is down YTD from its astronomical highs.

In December 2018, Tilray signed a deal with Novartis (NVS) subsidiary Sandoz to co-brand and distribute non-combustible cannabis products in legal markets worldwide. This was big pharma’s first partnership with the cannabis industry. Tilray also partnered at the end of 2018 with Anheuser-Busch InBev (BUD) in a $100 million deal to produce non-alcoholic THC and CBD infused beverages to sell in legal markets. These have the potential for huge popularity if the cannabis market starts to pull heavily from the alcohol industry.

Tilray is currently a Zacks Rank #3 (Hold) and is set to report its earnings after the closing bell on Tuesday, August 13. Our Zacks Consensus Estimates call for top line growth of 313.06% that would see it reach $40.23 million.

Like Canopy, estimates for Q3 show even stronger growth, with 408.5% gains expected over last year to $51.1 million. Full year revenue growth projections show 320% growth to reach $181.2 million. Plus, 2020 revenue is predicted at $394.3 million.

Bottom Line

Tilray and Canopy are both projected to post losses through at least fiscal 2020. But investors should not be too worried as both companies pour money into growth opportunities and prepare for U.S. marijuana legalization. Tilray and Canopy also appear to be trending in the right direction as their projected losses are set to shrink moving forward.

Both of these companies are poised to jump on U.S. cannabis legalization though partnerships with other companies. The cash infusions from these deals have allowed Canopy and Tilray to expand at a tremendous pace and the partnerships will provide them already established distribution channels if and when the U.S. legalizes.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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