The Big Reason Why Canopy Growth Corp. Stock Soared 6% Yesterday

Canopy Growth Corp.’s (TSX:WEED) latest organic cannabis venture should add significant growing capacity.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

December 19 was yet another strong day for Canopy Growth Corp. (TSX:WEED), as its shares surged 6% in trading, as of this writing. One big development, which encouraged an analyst to believe there’s a lot more upside left in Canopy, fueled the stock price.

Onward to organic cannabis

Deals have become a new normal for Canopy, but the latest one is a bit offbeat — Canopy is now grabbing greenhouses to convert them into organic cannabis facilities.

Canopy just struck a joint venture with Quebec-based greenhouse operator Les Serres Stephane Bertrand to form a new company named Les Serres Vert Cannabis Inc. (Vert Mirabel), which will lease Bertrand’s 700,000-square-foot greenhouse facility that’s currently used to grow tomatoes and other vegetables to produce cannabis.

It’s an important deal for two reasons: it’ll strengthen Canopy’s foothold in a large market, Quebec and, more importantly, will allow Canopy to make inroads into organic marijuana thanks to Bertrand’s expertise in growing organic tomatoes.

A deal just in time

Organic cannabis holds a lot promise, primarily because marijuana has medicinal uses where safe and chemical-free products gain significance. Because cannabis grows in a similar environment as tomatoes, Bertrand’s greenhouse should be a good fit to grow organic cannabis.

Also, the facility should add significant growing capacity for Canopy at a time when the legalization of recreational marijuana in Canada is just around the corner and rivals Aphria Inc. (TSX:APH) and Aurora Cannabis Inc. (TSX:ACB) are expanding rapidly. Aurora Cannabis’s flagship Aurora Sky project, for instance, is an 800,000-square-foot facility that’s expected to have an annual production capacity of 100,000 kilograms of cannabis. Aphria is expanding its capacity to one million square feet under its ongoing expansion programs.

Canopy expects to start production at Bertrand’s greenhouse by May 2018. Canada is expected to open the recreational marijuana market by July 2018.

Canopy gets an analyst upgrade

Encouraged by Canopy’s deal with Bertrand, GMP Securities analyst Martin Landry upped his price target of Canopy stock to $24.

Landry believes Canopy will have the “largest inventory available” when Canada legalizes recreational cannabis in July 2018. Landry also believes that Canopy is the “best positioned LP to make the transition from the medical to the recreational market.” That makes sense, given Canopy’s leadership position in the industry and aggressive expansion moves, as evidenced by its latest deal with Bertrand.

Foolish takeaway

While Landry’s price target points at 10% upside in Canopy stock from Tuesday’s closing price of $21.85 over the next 12 months, the stock could soar much higher if the recreational markets open as anticipated. Stay invested in Canopy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Neha Chamaria has no position in any stocks mentioned.

More on Investing

Investing

KM Throwaway Post

Read more »

Investing

Carlos Test Yoast Metadata

Read more »

Investing

KM Ad Test

This is my excerpt.

Read more »

Investing

Test post for affiliate partner mockups

Updated: 9/17/2024. This post was not sponsored. The views and opinions expressed in this review are purely those of the…

Read more »

Investing

Testing Ecap Error

Premium content from Motley Fool Stock Advisor We here at Motley Fool Stock Advisor believe investors should own at least…

Read more »

Investing

TSX Today: Testing the Ad for James

la la la dee dah.

Read more »

Lady holding remote control pointed towards a TV
Investing

2 Streaming Stocks to Buy Now and 1 to Run From

There are streaming stocks on the TSX that are worth paying attention to in 2023 and beyond.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Stocks for Beginners

Top Recession-Resilient TSX Stocks to Buy With $3,000

It's time to increase your exposure to defensives!

Read more »