It’s the most valuable weed stock in the world, but Echelon Wealth Partners analyst Russell Stanley thinks there is still significant upside left in Canopy Growth Corp. (TSX:WEED).
This morning, Canopy announced it would form a news company that would commit $20-million to support cannabis producers. The company, called Canopy Rivers Corp., will provide growth capital in exchange for a stream of future production.
“As new companies pursue opportunities in the sector, accessing capital and successfully navigating the stringent regulatory environment continues to be critical gating items for many, explained CEO Bruce Linton. “Canopy Rivers helps to fill that void with a less costly and less dilutive way to foster the cannabis ecosystem of both boutique and commercial-scale operators. Consumers benefit from a more diverse collection of producers and products; and companies get access to an alternative source of capital that comes with a lifeline to tap for support if they need it. Canopy Rivers gets to build and maintain a steady supply of cannabis at a predictable cost, and Canopy Growth gets access to an increased outlet for wholesale supply and differentiated products. This platform creates a mutually beneficial way to support industry growth.”
Stanley says Canopy is making moves that few others can.
“With a strong balance sheet and significant operational experience in bringing facilities into production, WEED has both the cash and the regulatory knowledge to effectively support smaller partners,” he says. “In return, WEED gains additional access to product, which both deepens and broadens the Company’s offering suite.”
The analyst says today’s news is just the latest example of why he is bullish on the stock.
“We continue to rate WEED as one of our Top Picks because of its unique combination of speed (i.e. tradition of market leadership) and size (production capacity and product breadth). Potential catalysts include expansion announcements, M&A activity, and improved financial performance.”
In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $14.00 on Canopy Growth Corp., implying a return of 53 per cent at the time of publication.
Stanley thinks Canopy will post Adjusted EBITDA of negative $14.2-million on revenue of $40.4-million in fiscal 2017. He thinks these numbers will improve to EBITDA of negative $6.0-million on a topline of $130.4-million the following year.