Canopy Growth Corp. will “swarm the shelves” of the rec cannabis market, Beacon says

Canopy Growth Corp. (Canopy Growth Stock Quote, Chart, News: TSX:WEED) is poised to produce an incredible 220,000 kg of cannabis by 2020, which would potentially give it one-third of the entire Canadian market, says analyst Vahan Ajamian of Beacon Securities, who on Monday reiterated his “Buy” recommendation and 12-month target price of $37.00 per share for WEED.

Last week, Smiths Falls, Ontario-based Canopy announced it had secured its second cultivation license for its greenhouses in Delta, BC, facility. The move plus the company’s expansion at its Aldergrove, BC, site mean that Canopy Growth Corp. has virtually doubled its licensed footprint, says Ajamian, who sees WEED as the clear industry leader.

“Canopy has the expertise, financial resources and regulatory know-how to accomplish significantly more and move meaningfully faster than its competitors,” says the analyst in an update to clients. “We believe the company is best positioned to swarm the shelves of the legal market in all regions (it is targeting 40 per cent market share) — which is the best set up for any licensed producer to get first time users and keep them long-term.”

The analyst sees Canopy producing revenue and EBITDA in 2018 of $78.6 million and negative $25.2 million, respectively, revenue and EBITDA in 2019 of $187.9 million and $16.8 million, respectively, and revenue and EBITDA in 2020 of $1,179.9 million and $322.4 million, respectively. His 2020 revenue estimate compares to $861 million consensus.

“For conservatism, we have elected to take another 10 per cent haircut off [our F2020] 244,000 kg forecast, with our formal forecast for FY20 being 219,647 kg,” says the analyst. “We note that this represents one-third of the market size projected for the first full year of recreational sales by the Parliamentary Budget Officer in its November 2016 report (i.e., 655,000 kg).”

Ajamian’s discounted cash flow valuation produces a $37.00 target price, which represents a 24 per cent return on investment at the time of publication.