A plan that will see Canopy Growth Corp. (TSX:WEED) subsidiary Tweed triple its production capacity at Tweed Farms is winning approval from GMP Securities analyst Martin Landry.
This morning, Canopy announced it had finalized the purchase of a parcel of land next to its existing facility, including a 458,000 square-foot greenhouse.
“We see a long-term need for a diversified and exponentially larger footprint here in Canada balancing indoor and greenhouse growing platforms,” said CEO Bruce Linton. “Expanding the production capacity and greenhouse space at Tweed Farms allows us to continue to grow into the demand in the market, and showcase our best-in-class sun grown products.”
Landry says he expects most production could begin in the first half of 2018. He notes that some quick math reveals the significance of this development.
“We estimate the production capacity of Tweed Farms’ existing 350,000 sq.ft. greenhouse at ~20,000kg, suggesting a yield of ~60 grams/sq.ft. Applying this metric to the new (458,000 sq. ft.) facility to be constructed on adjacent land and planned expansion of the existing site (212,000 sq. ft.) suggests Tweed Farms could generate capacity of in excess of 60,000kg once all upgrade/construction work is completed, tripling the current base,” explains the analyst. “This is quite significant as it would represent a ~45% increase on our forecasted overall production base for Canopy of ~90,000kg by the end of 2018. Under the above assumption, we estimate that the proportion of Canopy’s overall production generated from greenhouses (once planned facilities in New Brunswick, Alberta and Saskatchewan are completed) could shift to ~50% from 2019 onwards, up from ~25% prior to today’s announcement. This could help to reduce average production costs, and should position Canopy’s future production profile more in line with some of its close competitors which are also building large greenhouse projects.”
In a research update to clients today, Landry maintained his “Buy” rating and one-year price target of $11.00 on Canopy Growth Corp., implying a return of 17.6 per cent at the time of publication.