Is Canopy Growth Stock a Buy?

Recently, Martha Stewart, the entertainment and lifestyle icon, launched a new set of cannabis-infused oils and edibles bearing her personal brand. Rather than targeting people that need medicinal cannabis or who want a recreational product, Stewart’s brand purports that marijuana has a place in your daily wellness routine. If that isn’t a sign that the cannabis industry has grown far beyond its roots, nothing is…

Stewart isn’t competing in the wellness market alone, however. Canopy Growth (NASDAQ:CGC) is at the start of what could be a long collaboration with Stewart. Across the U.S. and elsewhere, the company is launching a lineup of next-generation “Cannabis 2.0” products like vapes, edibles, and marijuana beverages. At the same time, it seeks to evangelize cannabis-using icons like Stewart, thereby converting skeptical new customers and reaching new demographics. But will this stock be a worthwhile investment anytime soon?

The case for Canopy

Canopy’s strategy is to focus on Canadian recreational consumers, the American cannabidiol (CBD) market, and the German medicinal market. It thinks that the combined worth of these markets will be around $22 billion by 2023, which is more than large enough to safely share with several competitors. So far, its quarterly revenues are growing by 76.6% year over year, which indicates that its plan is working.

Between revenue growth and careful spending, the company’s key financial metrics are continuing to improve. In the most recent quarter ending Sept. 30, its free cash flow had improved 57% compared to last year. This was made possible by reducing its workforce, spending less on research and development (R&D), and reducing production capacity. This led to selling, general, and administrative (SG&A) expenses falling by 19% year over year. The company has also taken an aggressive approach to trimming share-based compensation, which was a major driver of high operational expenditures last year.

It plans to continue making similar cuts and improvements, which will result in up to $200 million in cost savings over the next two years. Overall, potential investors should be very pleased with the progress so far, and it’s a positive sign that management has set a concrete goal that it can be held accountable for meeting.

The company will doubtlessly use its partnership with Constellation Brands to distribute its products more efficiently. As a powerful competitor in the consumer packaged goods (CPG) industry, Constellation is the perfect companion for Canopy, especially as it moves further into the Cannabis 2.0 space. In particular, Canopy’s Biosteel line of CBD beverages will benefit from being distributed through Constellation’s retail network, which is slated to reach 100% penetration in the U.S. early next year. This will extend its…

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