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Canopy Growth Unveils Cannabis 2.0 in Canada and a New CBD Line for the U.S Market

05 Dec Canopy Growth Unveils Cannabis 2.0 in Canada and a New CBD Line for the U.S Market

Canopy Growth (NYSE: CGC), a Canadian cannabis behemoth, announced the launch of a new hemp-derived CBD line for the American market under the brand name “First and Free”, for sale in 31 U.S States where sale of CBD products are legal. This comes on heels of the launch of its ambitious Cannabis 2.0 portfolio that comprises of a range of 13 cannabis-infused drinks and a line of cannabis-infused chocolates. The move will enable it to capitalize on the phase 2 legalization of C.B.D, and T.H.C.-infused drinks and edibles that came into effect recently.

The Company is slowly but steadily making a foray into the U.S Cannabis space, which started with the unveiling of its $150 million, 308,000-square-foot facility hemp industrial park in Kirkwood in July 2019. This marked its first step into the hemp sector and its official entry into the U.S. Canopy has plans to open its hemp processing facilities in seven U.S states.

Earlier this year, Canopy Growth entered into a definitive agreement with Acreage Holdings (OTCQX: ACRGF), that bestows it with the right to acquire 100 percent of the company’s shares at such time as cannabis production and sale becomes federally legal in the United States, subject to shareholder approval.

The deal will enable Canopy to secure an entrance into the US cannabis market once it is legalized. The formidable management team, licenses and assets of Acreage when combined with Canopy’s intellectual property and brand value are expected to create a remarkable shareholder value.

CEO Mark Zekulin commented,

“Our hemp operations are now completing. We have the contract manufacturers in place. We have actual manufacturing underway… We have probably around 100 people in the U.S. now and a lot of head office resources going towards that. Like all things cannabis, nothing is easy. The conversations with retailers aren’t easy. The basics of setting up an online store are more challenging than selling a widget”

The apprehension in the above statement seems well founded, considering Apple just removed 181 apps related to vaping from its App Store, that were used for controlling the lighting and temperature in the vape products. Furthermore the Company revised its App Store guidelines to discourage the sale, assistance or promotion of any products through these apps.

Canopy Growth termed Apple’s decision as a knee-Jerk reaction, as it will have an impact on the Company’s recently launched vaping, edibles, and beverage products line, especially since patients will no longer be able to control their devices using these apps. The Company claims that its products come with a app-based passcode lock that enable customers to disable the device and control the location and temperature, which will now become defunct affecting the products demand.

Canopy Growth (NYSE: CGC)

Market Cap: $6.38B; Current Share Price: 18.38 USDChart
Data by YCharts

report by Grand View Research, Inc predicts that the global legal marijuana market will be worth over USD 146.4 billion by 2025. The same report pegs the U.S market size at USD 7.06 billion in 2016 which will grow at a CAGR of 24.9% from 2017 to 2025. Medical marijuana (OTCPINK: MJNA) alone will be worth USD 100.03 billion by 2025.

The Cannabis plant has an estimated 113 different compounds out of which THC and CBD are the two main constituents. These affect the receptors in the brain to alter an individual’s physical and mental state. THC is mainly responsible for the psychoactive effects or the feeling of “high” caused by the use of cannabis.

Image Source: Canopy

CBD on the other hand, has several powerful anti-inflammatory, analgesic, neuroprotective and anti-anxiety properties, which explains its growing popularity to treat a plethora of medical conditions. Unlike THC, CBD does not have any psychotropic effects and hence is widely preferred. It is increasingly being used to treat conditions such as cancer, cardiovascular anomalies, arthritis, anxiety, depression and Insomnia. In addition it has also been proven to possess neuroprotective benefits that can treat diseases such as seizures, Multiple Sclerosis (MS), Alzheimer’s, Parkinson’s and Schizophrenia to name a few.

In 2017, The WHO expert committee on Drug Dependence (ECDD) concluded  that in its unadulterated form, CBD does not cause harm or have abuse potential. While further research is underway on the subject it has been proved that CBD is well tolerated in humans and is safe.

There is a growing demand for CBD derived from Hemp, as it eliminates the negative effects caused due to THC and ensures a safe product. The U.S hemp industry received an impetus, with the passing of the Agriculture Improvement Act of 2018. The bill made a clear demarcation between marijuana and hemp, essentially making the sale of hemp legal, thereby boosting the sale of hemp-derived cannabidiol (CBD) products.

According to a report by Grand View Research, the global industrial hemp market is expected to reach $10.6 billion by 2025. We take a look at some pioneers in the field, who are helping redefine the functioning and public perception of the Hemp Industry.

Canopy Growth Corporation formerly known as Twead Marijuana Inc., is a Canada-based Cannabis giant engaged in cultivation and sale of Marijuana for medical purposes. The company offers dried flowers, oils and concentrates, softgel capsules, and hemps under the brand name Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs by Snoop, Bedrocan Canada, CraftGrow, and Foria. The company runs an online store named Tweed Main Street, which allows registered patients to purchase marijuana from producers across various brands.

Canopy has been eyeing the U.S market for a while now; it is backed by a $4 billion investment from Constellation Brands (NYSE: STZ) and through them gained a license from the New York State to process and produce hemp and develop products containing Cannabinoid (CBD). The deal with Acreage however could be a game changer. Once the acquisition goes through, it will give rise to the largest Cannabis player in the market.

Canopy’s deal with Acreage involves an upfront US$300 million or approximately US$2.55 per Acreage Subordinate Voting Share, with the entire transaction being valued at US$3.4 billion, a 41.7% premium over the 30-day volume-weighted average price of Acreage Holdings shares.

The Company is targeting Q4 FY20, for introduction of CDB products related to health and wellness, skin and beauty and pet aides for the U.S market. It will also focus on CBD based medical therapies, using its robust and extensive intellectual rights portfolio, consisting of 110+ patents in application and technology.

Image Source: Canopy

The proposal effectively guards Canopy against regulatory uncertainty in the U.S market, with the agreement only being finalized when Marijuana is fully legalised. It also allows the company to acquire a storing foothold in the market at a great price as opposed to once legalization is announced allowing it to make a quicker foray into the market.

In the event of Marijuana being legalized by the end of the year, as some observers predict, the company is fully ready to commence its operations immediately, it is investing in one of the biggest players in the U.S market and hence will be able to leverage on its established chain of dispensaries and licenses. It will gain access to Acreage’s 87 dispensaries and 22 cultivation and processing sites across 20 U.S States.

Risk Assessment

  • Canopy Growth is aiming at capturing a major share of the global cannabis market, while its plans for the U.S market are already in place, it also has a 300,000 sq. ft facility in Denmark and is expecting initial harvests in Q3, FY20. In addition, it has acquired 5 cannabinoid-based therapies from C3 in Europe and is the manufacturer and distributor of dronabinol in Germany, Austria, Switzerland, and Denmark, making it a leader in the European medical cannabinoid sales as per a Company statement. In Australia, Canopy has acquired product import permits and has over 14,000 approvals through its SAS program.
  • The Company realises the importance of a strong retail network and has over 26 Tweed and TS banner stores in Canada with a nationwide sales team, it has plans to expand the store count to 600+ by the end of FY20.
  • The US Retail Marijuana sales are likely to reach $30 billion by 2023, according to an estimate by Marijuana Business Factbook. This presents a massive opportunity for growth and expansion to vertically integrated cannabis companies, which have a strong retail footprint. Canopy Growth realizes the opportunity and is going all out to make strategic acquisitions such as acreage that will help establish a solid presence in the U.S cannabis space, starting with the impending launch of its : health and wellness, skin and beauty, sleep solutions, pet aids with Martha Stewart acting as the product advisor.
  • The Company is also planning to diversify into the CBD – based medicine space by enrolling patients for clinical trials in the areas such as PHASE IIB SLEEP, PAIN, ANXIETY AND PHASE III SPASTICITY/MULTIPLE SCLEROSIS2, along with ANIMAL HEALTH CLINICAL TRIALS INCLUDING COMPANION ANIMAL ANXIETY2. The other areas of study include partner and affiliate research programs in opioid-sparing, smoking cessation, and concussion treatment.
  • The Company has a very strong intellectual property rights portfolio with over 110+ patents and 290+ patent applications filed to date covering areas such as Cannabis-based beverage production, Cannabis-based therapeutics, Device & delivery technologies, Large-scale cannabis processing, Cannabis plant genetics and Broad geographic coverage.
  • The Company, like many other, had to face the heat owing to vaping deaths and increasing concerns about their long-term impact on lungs. As the industry is still in its nascent-stage, there will be many such concerns and issues raised about products, which the Company will have to withstand to be successful in the long-run. Owing to its diverse portfolio and operations, Canopy has so far managed to mitigate the risks associated with such issues, however Apple’s decision may have long-term implications for the Company.
  • The Cannabis Industry is governed by stringent regulations and is fraught with uncertainty, the Company will have to be prepared to adapt to any changes in policies or regulatory framework and capitalize on new opportunities that may arise in the future such as heavy taxation or clamp-down on operations.
  • Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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