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Friday, October 30, 2020

Evaluating the Opportunity in CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF)

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CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) is a major Canadian medical marijuana producer. We cooled on this stock in March, but not because we were necessarily fundamentally concerned about the story, but because we saw the stock has likely heavy with too much momentum money into a period where the commodity market underlying the company’s numbers was going through a strong correction, and this company had some disadvantages relative to its peers, as we cover below.

In this case, the stock had been ripped higher from about $3/share to nearly $15/share on an intraday basis. And yet, the company, since that move, had not clearly diversified its end market beyond really just the MMJ primary producer role in Canada. With the announcement of full-scale legalization of pot coming in Canada, the stock found a bit of an additional boost. But that really amounted to a profit taking opportunity. At this point, one must ask whether or not this is the new entry opportunity. We give our thoughts below.

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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As noted above, we have been rather cool on this stock since March. But we are now starting to warm to it again. Importantly, the balance sheet here is like a fortress, with a huge stockpile of cash against almost no debt. At the same time, revenues are growing at nearly 200%.

However, we would raise one other concern that may be part of why TWMJF has been such a laggard among its peers, such as APHRIA INC COM NPV (OTCMKTS:APHQF), AURORA CANNABIS IN COM NPV(OTCMKTS:ACBFF), and ORGANIGRAM HLDGS I COM NPV (OTCMKTS:OGRMF): it is the only one in that group to still have pink sheet status on the OTC market. The rest are all above that level, and carry full financial information available to US investors on the US OTC exchange. In addition, the company’s financials are still listed as “unaudited”.

While we assume the company’s numbers as stated are for real, there is always a confidence game in markets, especially during a correction. And, right now, the big pot producers are clearly correcting, which is going to be tougher for the one that lists as a Pink Sheet name and posts unaudited numbers. Plain and simple.

Currently trading at a market capitalization of $996M, TWMJF, according to its statements as provided to the markets in unaudited form, has a significant war chest ($92.8M) of last reported 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%. This may be a very interesting story and we will look forward to updating it again soon. 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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