Canopy Growth Corp’s size and scale is unmatched, GMP Securities says

With the largest dried cannabis inventory and an eye towards injecting value added pot products into its lineup, Canopy Growth Corp. (Canopy Growth Stock Quote, Chart, News: TSX:WEED) is poised to be the clear leader in Canada’s marijuana sector, says analyst Martin Landry with GMP Securities. In a research update to clients on Tuesday, the analyst reiterated his “Buy” rating and $40.00 target price.

Canada’s recreational marijuana industry is only a few months away (sometime in August is the federal government’s current timeline), and all of the sector’s major players are still building their greenhouses, warehouses and shipping facilities.

But after a recent visit to Canopy’s Smiths Falls HQ, Landry says that he expects the company to take the lead once the rec market begins.

“We came away from our visit of the Smiths Falls campus with more visibility on Canopy’s readiness to tackle the opening of the recreational market,” he says. “The expansion will provide the company with industrial scale production capacity for infused food and drinks, something key to tap the recreational market.”

Landry says that at 18 tonnes, Canopy has built up the largest inventory of dried cannabis, more than the next five largest public companies combined and representing 36 per cent of the total domestic inventory. He calls it a strong position from which to capture the biggest market share right out of the gate, and with its aim to produce value added products like infused drinks and infused food, the company will be able to derive higher profit margins than from selling dried cannabis alone.

“In our view, Canopy’s scale and reach is unmatched amongst Canadian licensed producers and we expect the company to generate significant sales growth in H2FY19,” says the analyst. “Despite a leading position, the company’s shares trade in line with peers on a 2019 EV/EBITDA basis, providing investors with an appealing entry point in our view.”

Landry projects Canopy’s revenue and EBITDA for 2018 at $78.1 million and negative $20.7 million, respectively, for 2019 at $376.9 million and $68.3 million, respectively and for 2020 at $1.030 billion and $273.0 million, respectively.

His $40.00 target price represents a potential return on investment of 18.1 per cent at the time of publication.