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Wednesday, October 21, 2020

A Fresh Look at CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF)

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CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) has been one of our favorite plays in the Canadian cannabis patch until about a month ago, when we wrote it up as a potential near-term stall and casualty of a commodity supply glut in the making. That said, we want to provide a little nuance to that view today as the stock pulls back a bit.

To be sure, this is a case of “buy the rumor, sell the news”. The idea that Canada would go fully legal is not brand new, and TWMJF has been a monster winner, running from $3 to $10/share in just 6 weeks last Fall in front of the vote. Since that point, if one assumes it was already de facto apparent that both the idea of many more US states and the entire country of Canada would be legalizing (which we think is hardly a stretch), then what has changed for the better about this picture? Nothing. That’s not bad at all. It’s simply hard to find the ammo to extend a 230% 6-week rally without some new accelerant entering the picture.

CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) is one of the bigger growers. The company produces and sells medical marijuana in Canada. It offers dry cannabis and oil products primarily under the Tweed and Bedrocan brands. It also sells its products through online.

According to company materials, “Tweed is the most recognized marijuana production brand in the world. It has built a large and loyal following by focusing on quality products and meaningful customer relationships. Tweed doesn’t just sell marijuana, it facilitates a conversation about a product we’ve all heard about but haven’t met intimately yet. It is approachable and friendly, yet reliable and trusted. As marijuana laws liberalize around the world, Tweed will expand its leading Canadian position around the globe.”

Also from their materials, “Bedrocan is the epitome of medical-grade cannabis. Bedrocan BV pioneered medical cannabis in Holland through decades of selection and refinement, leading to standardized, whole bud cannabis strains that patients can rely on. Bedrocan Canada supplies the same standardized strains to the Canadian market through exclusive licensing rights to the American continents, an arrangement it will also enjoy for all future genetic advancements. Due to its consistency over time, Bedrocan’s strains have been used in clinical research in seven European countries. That commitment to research didn’t stay on the east side of the Atlantic – Bedrocan Canada recently launched one of the largest clinical cannabis studies in the world, the EQUAL Study, to evaluate quality of life before and after medical cannabis use.”

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If there is one point here, it’s this: We weren’t ultra-bullish on TWMJF in March because it was awfully hard to see an argument for “even more upside”. The stock has been one of the most dramatic winners on planet earth over the past year. Don’t be greedy!

That said, are we ultra bearish? No. Certainly not. The company is in a growth market with an almost absurd balance sheet ratio and an industry-dominant position.

How much is this last point worth? Quite a bit. Consider this: as the new legislation is laid down, the lawmakers in Canada are going to need to call some so-called big-wigs to get a boots-on-the-ground understanding of how things are done so they can get the fine print right. Well, the devil’s in the details. And the fine print may well be written by execs at the big production houses, Canopy is in that room easily.

Hence, they will have some kind of hand, more likely than not, in writing the very legislation that is going control their own fate. That bodes well.

We’ve witnessed -7% drained out of share pricing for the company over the past month. That said, market participants may want to pay attention to this stock. TWMJF is a stock who’s past is littered with sudden rips. What’s more, the stock has benefitted from a jump in recent trading volume to the tune of 25% beyond its prior sustained average level.

Earning a current market cap value of $1B, TWMJF has a significant war chest ($92.8M) of cash on the books, which must be weighed relative to about $1.1M in total current liabilities. TWMJF is pulling in trailing 12-month revenues of $30.3M. In addition, the company is seeing major top line growth, with y/y quarterly revenues growing at 180.1%. As more color becomes clear on the name, we will review the situation and update our take. For continuing coverage on shares of $TWMJF stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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