GMP upgrades Canopy Growth to $70, citing plan for U.S. hemp factory

(The Canadian Press)

GMP Securities raised its price target on Canopy Growth Corp. (WEED.TO) after the company announced plans for a large-scale hemp extraction operation in New York state.

Canada’s largest cannabis producer said on Monday that it would spend as much as US$150 million on an industrial park focused on hemp extraction and product manufacturing.

The recent passage of the U.S. farm bill paved the way for federally legal industrial hemp and hemp-derived cannabidiol (CBD). The non-psychoactive compound is widely expected to find its way into an array of health and wellness-oriented goods, including sports drinks, food supplements, and pain relief creams.

GMP Securities analyst Martin Landry tacked $20 onto his target price for Toronto-listed Canopy shares, raising his projection from $50 to $70. The stock climbed 11 per cent to $56.45 on Monday as investors reacted to Canopy’s U.S. expansion. Shares retreated 2.23 per cent to $55.12 at 10:22 ET on Tuesday.

“The entrance of Canopy in the U.S. is significant. Its shares could receive a lift from investors looking for exposure to the U.S. cannabis market, given the company is currently the only cannabis company with U.S. operations listed on a major U.S. stock exchange,” Landry wrote in a research note. “We have doubled our international sales forecasts, which drives our valuation increase.”

Illinois-based cannabis and CBD market research firm the Brightfield Group expects CBD sales to reach $22 billion by 2022, outpacing cannabis while disrupting both the consumer packaged goods and pharma sectors.

Landry notes that Canopy has an early-mover advantage, having added strategic hemp assets to its portfolio in 2016. The company said it harvested 4,500 acres of hemp in Saskatchewan last fall, which should yield seven tonnes of CBD extracts.

Canopy will leverage its $5 billion deal with Constellation Brands Inc. (STZ) to accelerate expansion in the U.S. market, Landry predicts.

“We believe that Canopy could have CBD-based products available across the United States in 2020,” he wrote.

Canopy said several sites in the Southern Tier region of New York are being considered for the new facility, and an announcement will be made within 100 days. Constellation Brands’ Victor, N.Y. headquarters is located in the area.

“Canopy Growth was founded to drive innovation within the cannabis and hemp industries,” wrote chairman and co-CEO Bruce Linton in a news release. “In New York we see
an opportunity to create products that improve people’s lives.”

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