Which stock wins in a match-up between these two Canadian marijuana growers?
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Finding reasons to like Canopy Growth stock is an easy task. The company should be poised for ginormous sales growth over the next few years, for two primary reasons.
First, Canada’s legal recreational marijuana market opens in October, and Canopy Growth is sure to be a big winner in the market. The company already has retail cannabis supply agreements with seven Canadian provinces and one territory.
In addition, Canopy snagged a big partnership deal in 2017 with Fortune 500 alcoholic-beverage maker Constellation Brands. The two companies plan to launch cannabis-infused beverages once regulations are completed for the sale of these products in 2019. Constellation also bought a 9.9% stake in Canopy Growth.
But Canopy Growth is also active in several other international markets. The company has operations in Australia, South America, Africa, and across Europe. Canopy recently completed the full acquisition of Spectrum Cannabis Chile, solidifying its presence in the Latin American market.
Meeting the demand for domestic and global recreational and medical marijuana markets shouldn’t be a problem for Canopy. The company has production facilities in seven Canadian provinces with a combined 2.4 million square feet of growing space. Canopy is also adding another 3.2 million square feet of growing space.
CannTrust Holdings achieved a feat a couple of months ago that few Canadian marijuana growers have done: report its third profitable quarter in a row. That’s a better track record than Canopy Growth, which is much larger than CannTrust.
The company has also lined up supply agreements for recreational marijuana with three provinces — British Columbia, Alberta, and Manitoba. CannTrust plans to market three recreational cannabis brands with its product lineup, including dried flower, pre-rolled joints, oils, and capsules.
CannTrust also has its eyes on the global medical marijuana opportunity. The company already ships medical cannabis to Australia. It formed a joint venture earlier this year with Stenocare to sell medical marijuana in Denmark, with plans to develop a production facility in the country down the road. CannTrust thinks that it will export medical cannabis to Brazil, Germany, and Mexico in the future.
There are two schools of thought on buying Canadian marijuana growers. One is to go with smaller players with low-cost operations and plenty of room for the stock to run. CannTrust is a great pick for investors adhering to this line of thinking.
I line up more with the latter viewpoint. Supply will almost certainly catch up and surpass demand in Canada within the next two or three years. Companies will be forced to turn to markets in other countries. Canopy Growth has an advantage in international markets that CannTrust can’t match. While I think CannTrust is one of the best of the small marijuana growers, Canopy is the better pick, in my opinion.
That being said, Canopy could run into challenges, too. There’s no guarantee that the international markets will absorb all of the excess capacity of the Canadian cannabis industry — at least not at first. I wouldn’t be surprised to see supply demand imbalances along the way that hurt even a big player like Canopy. My hunch is that long-term global prospects should make Canopy a winner, but the stock could be highly volatile.
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