For the second time in less than a month, shares of Canopy Growth Corp (Canopy Growth Stock Quote, Chart NYSE:CGC) are getting a lift from Wall Street brokerage firm Piper Jaffray who on Friday increased its price target from $40.00 to $60.00, saying that Canopy’s recent move into the hemp business in the state of New York marks the “beginning of a long growth trajectory” into the US market for the cannabis company.
Canopy shares are up almost ten per cent in midday trading on Friday on the TSX as investors react to the new report from Piper Jaffray, still one of only a few US firms to have analyst coverage of the cannabis sector. Earlier in January, Piper Jaffray initiated coverage of the cannabis industry, giving overweight ratings to Canopy Growth and Tilray, while earlier this week, CIBC World Markets issued a report on the global cannabis industry and chose Canopy and Cronos Group as two companies with likely staying power in the fast-emerging space.
Authors of the new Piper Jaffray report Michael Lavery and Jeffrey Kratky project that the global cannabis industry will be worth between US$15 and US$50 billion annually over the near term and US$250 to US$500 billion annually over the long term.
“We believe the long-term growth can be significant —both from transitioning illicit trade to legal sales, medical sales, and from transitioning sales in health [and] wellness categories to CBD-infused products,” they write.
The analysts say Canopy’s move earlier in January to snag a hemp growing license in New York and its aim to invest between US$100 and US$200 million in CBD operations in the United States support their thesis.
“Canopy has hemp-specific IP, cash reserves, and technical expertise that should position it well in the US hemp and CBD market,” they write. “Though we do not yet have more specifics on its plans, we believe this tangible step into the US is a clear positive and makes us more bullish on its outlook for sustainable growth.”
On Canopy’s plans in New York, CEO Bruce Linton has said having alcohol giant Constellation Brands as a backer (Constellation upped its stake in Canopy this past August to the tune of US$4 billion) has been key.
“We’ve been keeping a very close eye on the US for five years and as the Farm Bill was coming through and with Constellation as an investor partner really close to what was going on, we started working on which states would be the optimal locations in which to create a hub of us plus other supporting actors to process and create maximum value from hemp,” said Linton to BNN Bloomberg.
Linton’s leadership is itself adding plenty to Canopy’s value, according to BNN Bloomberg’s Paul Bagnell, who commented on the new Piper Jaffrey report, saying, “Other analysts have pointed to Canopy’s management as a big, big plus as well. I think [Linton] carries a lot of credibility as does his whole team. It’s a very diverse sector with all kinds of new players and I think there’s some unevenness in the management ranks.”