Canopy Growth set to become the ‘global titan’ of cannabis: CIBC report

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OTTAWA CITIZEN – JACQUIE MILLER – January 21, 2019 – Canopy Growth Corp. in Smiths Falls is poised to dominate the global cannabis industry, a new report says. The CIBC World Markets report compares the cannabis industry to both the gold rush and the development of the internet and the automobile. Only a few companies will live up to the “lofty expectations” of many and dominate the global market, said the report from the investment banking arm of the Canadian Imperial Bank of Commerce.

“We believe that Canopy Growth represents the industry’s best chance at a global titan.”

Canopy has billions in the bank, superior management, the potential to make breakthroughs with new medical products, and global aspirations, said the report. And as the largest and most well-known cannabis company in the world, Canopy also has a head start on global competitors.

“Investors rarely get to witness the birth of an industry,” said the report. While dozens of small and medium-size cannabis firms will earn moderate revenues, only a handful will dominate the global trade, the report predicts.

The report named Cronos Group as another likely winner. Cronos owns cannabis growing facilities in Ontario and British Columbia, and has international operations.

Canopy and Cronos stand out primarily because of their “best in class” management teams, said the report.

That’s a key factor in an industry in which stock prices ride a roller-coaster.

Prices fluctuate in response to news reports and regulatory changes. Consider Ontario’s rough start to the legalization of recreational cannabis on Oct. 17, with complaints of poor service and delayed deliveries at the online government store. Most Canadian cannabis growers lost 30 to 40 per cent of their company value in a week, the report noted.

On the other hand, even rumours of major players from other industries investing in cannabis can send stocks soaring.

Canopy had a market value of $19.8 billion at the end of the day Monday.

But such valuations matter less for cannabis companies than some other industries, the report said.

“The key element of any investor’s choice is management’s vision for the future, both for the industry as a whole and their own niche within the industry.”

Canopy’s Bruce Linton is probably the most famous cannabis CEO, said the report. That matters because of his familiarity to regulators and ability to negotiate with executives in other industries, it said.

The report said it’s not surprising that Canopy and Cronos have captured the two largest investments in the cannabis industry, from Big Alcohol and Big Tobacco.

Constellation Brands, a U.S. beer, wine and spirits company, poured $5.2 billion into Canopy to develop cannabis beverages. Tobacco giant Altria Group Inc. has a proposed investment in Cronos of $2.4 billion that will be voted on by shareholders next month.

Canopy, which began life as Tweed Marijuana in the old chocolate factory in Smiths Falls, has been the main ambassador for the cannabis industry, said the CIBC report.

Canopy has been snapping up other companies at a rapid clip and expanding internationally.

It started by growing marijuana for medical patients and branched into recreational cannabis. Sometime this year, Canopy will unveil cannabis drinks, which officials promise will offer low-calorie, no hangover, healthier alternatives to alcohol.

However, the company still retains a strong focus on medical cannabis, where officials see global opportunity and the potential to replace pharmaceuticals and other products now used for sleep aids, pain treatment and mood therapy.

Canopy is also developing CBD products to treat anxiety in pets, another potentially huge market. (CBD is a non-psychoactive chemical found in cannabis and hemp.)

Canopy Growth Corporation — by the numbers

  • 2,500: Full-time employees
  • 4.3 million: Square feet of Health Canada-licensed production space, spread over 13 facilities across the country that grow and process cannabis
  • 15: Bricks-and-mortar Tweed or Tokyo Smoke stores the company operates in Newfoundland, Saskatchewan and Manitoba that sell recreational cannabis
  • $5.2 billion: Investment made into Canopy by Constellation Brands, the huge U.S. spirits, beer and wine company. Constellation Brands now owns 38 per cent of Canopy.
  • 15: Countries in which Canopy has operations, partnerships, subsidiaries or business activities: Canada, U.S., Germany, United Kingdom, Colombia, Brazil, Australia, Chile, Denmark, Jamaica, Lesotho, Czech Republic, Spain, Poland and Peru.
  • $19.8 billion: Market value of Canopy Growth Corp. as of Monday
  • 15: Approximate number of clinical trials Canopy has underway or planned to explore the potential medicinal benefits of cannabis

*sources: CIBC World Market, Canopy Growth Corp., Bloomberg