Cannabidiol & Tetrahydrocannabinol Market is poised to see considerable growth over the forecast period of 2018-2023. This report provides top and …
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The best and worst performing of the four largest ones (by market cap), Cronos and Aurora Cannabis, respectively, are shown in the chart below.
Investor interest in marijuana stocks soared last year, thanks largely to several huge events, including cannabis becoming legal for recreational use in California (January) and Canada (October).
We’re going to examine KushCo Holdings(NASDAQOTH:KSHB) — which provides packaging solutions and other ancillary products and services to the legal cannabis industry — to see whether its stock is a buy.
Image source: Getty Images.
Stock performance: The short and longer term
One of the first things a potential investor in KushCo probably wants to know is how the stock has performed over the short and longer terms, including how it’s stacked up against other cannabis stocks.
A one-year loser
KushCo stock declined 18.6% over the one-year period through Friday, Jan. 18. By comparison, the S&P 500 (including dividends) edged down 2.7%.
The stocks of the Canadian marijuana growers are a mixed bag over this same period. The best and worst performing of the four largest ones (by market cap), Cronos and Aurora Cannabis, respectively, are shown in the chart below. (Tilray is actually the best performer of the larger players, but it’s only been traded in the U.S. since July.) Shares of ancillary cannabis companies Innovative Industrial Properties(NYSE:IIPR) and EnWave have performed wonderfully and solidly, respectively. Innovative Industrial Properties (IIP) is a San Diego-based, cannabis-focused real estate investment trust that’s profitable and pays a dividend yielding 2.6%; EnWave is a Canadian company that launched its dehydration technology into the cannabis industry last year.
Data by YCharts.
A winner since its IPO three years ago
Since its initial public offering in early January 2016, KushCo stock has surged 171% — more than four times the S&P 500’s 40.9% return. Aurora Cannabis has rocketed 1,370% higher over this period, while EnWave has gained 90.2%. (However, EnWave only became a “cannabis stock” last year.) Cronos and IIP aren’t shown because they have not traded in the U.S. (not traded, period, for IIP) for this entire period.
Data by YCharts.
KushCo Holdings, which is based in California, was founded in 2010 by Nick Kovacevich, the company’s CEO and chairman of the board, and Dallas Imbimbo, who serves on the board. The company started life as Kush Bottles and changed its name last year to reflect its expansion beyond its packaging roots. It’s very close to a pure play, with only its acquired creative-design business having clients outside the cannabis realm. In short, the company’s aim is to be a one-stop shop for customers.
KushCo has sales and distribution facilities across the U.S. and Canada, and opened an office in China last fall.
KushCo’s businesses include:
Kush Supply: The largest distributor in the U.S. of vaporizer products, packaging, supplies, and accessories to cannabis growers, processors, extractors, manufacturers, and retailers.
Kush Energy: Provider of pure hydrocarbon gases and solvents to the cannabis sector. These products are used to produce cannabis extracts, such as hemp-derived cannabidiol (CBD) oils. So this business should benefit from the December passage of the Farm Bill, which legalized hemp across the U.S. effective Jan. 1, 2019. (CBD is a nonpsychoactive chemical found in the cannabis plant that has been linked to various wellness benefits.)
The Hybrid Creative: A creative design agency providing services for cannabis and noncannabis brands.
Koleto: The company’s research and development arm.
As previously noted, Kovacevich leads the company. It’s generally a plus to have a founder running the business, since these folks know their companies intimately, and often have much skin in the game. Studies suggest that founder-led companies outperform in the stock market.
Kovacevich owned 11,035,000 KushCo shares, valued at about $59.9 million based on the closing price of $5.43 per share, as of his most recently reported transaction on Jan. 8. (This was a sale at prices ranging from $5.98 to $6.15 per share for a total of $1.21 million.) Kovacevich has a 13.8% stake in the company, with Imbimbo not far behind at about 13%.
KushCo’s financial performance
Like many in the sector, KushCo has revenue that’s been increasing rapidly, while its losses on both an operational and a net basis have been growing. The company is rapidly scaling up its business and investing to fuel long-term growth.
Data by YCharts.
KushCo’s gross and operating margins have declined rather sharply since late 2017. Investors shouldn’t be overly concerned with operating margin at this point, given that the company is opening new facilities and otherwise spending to fuel long-term growth. (Operating margin will at least partly improve along with an improvement in gross margin.) But gross margin (total revenue minus cost of goods sold, divided by total revenue) is another matter.
In its fiscal Q1 earnings release, the company addressed this issue: “While we are confident in the Company’s upward trajectory, we acknowledge the impact that our dramatic growth has had on our gross margins, in particular, the utilization of air freight and additional cost incurring quality control measures at our receiving warehouse to meet demand. We have implemented a number of strategic operational initiatives that will drive our gross margins back toward 30% as we scale the business, with improvements in margins expected in the second half of fiscal 2019.”
Data by YCharts.
As to valuation, KushCo stock’s price-to-sales (P/S) ratio is 5.6, which is quite high in general, but reasonable relative to other cannabis stocks.
Data by YCharts.
Investors need to keep an eye on liquidity and shareholder dilution. At the end of its most recently reported quarter, KushCo had cash and equivalents of just over $3 million and long-term debt of $7.2 million on its balance sheet. The company burned through $48 million in cash over the last year, financing its ramped-up spending through increasing its debt load and issuing significantly more shares of stock. (Over the last one and two years, the number of shares has increased about 27% and 62%, respectively.) Increasing the number of shares of stock has a dilutive effect on the ownership stakes of existing shareholders.
Data by YCharts.
Is KushCo stock a buy?
After running through this exercise, I would not call KushCo stock a buy, though it appears worth putting on your watchlist. Investors should look for some indication that the company’s strategy of sacrificing profitability to fuel revenue growth and win customers will eventually pay off. Keep an eye on gross margins when the company reports quarterly results.
Canopy Growth Corp. in Smiths Falls is poised to dominate the global … And as the largest and most well-known cannabis company in the world, …
Canopy Growth Corp. in Smiths Falls is poised to dominate the global cannabis industry, a new report says.
The CIBC World Markets report compares the cannabis industry to both the gold rush and the development of the internet and the automobile. Only a few companies will live up to the “lofty expectations” of many and dominate the global market, said the report from the investment banking arm of the Canadian Imperial Bank of Commerce.
“We believe that Canopy Growth represents the industry’s best chance at a global titan.”
Canopy has billions in the bank, superior management, the potential to make breakthroughs with new medical products, and global aspirations, said the report. And as the largest and most well-known cannabis company in the world, Canopy also has a head start on global competitors.
“Investors rarely get to witness the birth of an industry,” said the report. While dozens of small and medium-size cannabis firms will earn moderate revenues, only a handful will dominate the global trade, the report predicts.
The report named Cronos Group as another likely winner. Cronos owns cannabis growing facilities in Ontario and British Columbia, and has international operations.
Canopy and Cronos stand out primarily because of their “best in class” management teams, said the report.
That’s a key factor in an industry in which stock prices ride a roller-coaster.
Prices fluctuate in response to news reports and regulatory changes. Consider Ontario’s rough start to the legalization of recreational cannabis on Oct. 17, with complaints of poor service and delayed deliveries at the online government store. Most Canadian cannabis growers lost 30 to 40 per cent of their company value in a week, the report noted.
On the other hand, even rumours of major players from other industries investing in cannabis can send stocks soaring.
Canopy had a market value of $19.8 billion at the end of the day Monday.
But such valuations matter less for cannabis companies than some other industries, the report said.
“The key element of any investor’s choice is management’s vision for the future, both for the industry as a whole and their own niche within the industry.”
Canopy’s Bruce Linton is probably the most famous cannabis CEO, said the report. That matters because of his familiarity to regulators and ability to negotiate with executives in other industries, it said.
The report said it’s not surprising that Canopy and Cronos have captured the two largest investments in the cannabis industry, from Big Alcohol and Big Tobacco.
Constellation Brands, a U.S. beer, wine and spirits company, poured $5.2 billion into Canopy to develop cannabis beverages. Tobacco giant Altria Group Inc. has a proposed investment in Cronos of $2.4 billion that will be voted on by shareholders next month.
Canopy, which began life as Tweed Marijuana in the old chocolate factory in Smiths Falls, has been the main ambassador for the cannabis industry, said the CIBC report.
Canopy has been snapping up other companies at a rapid clip and expanding internationally.
It started by growing marijuana for medical patients and branched into recreational cannabis. Sometime this year, Canopy will unveil cannabis drinks, which officials promise will offer low-calorie, no hangover, healthier alternatives to alcohol.
However, the company still retains a strong focus on medical cannabis, where officials see global opportunity and the potential to replace pharmaceuticals and other products now used for sleep aids, pain treatment and mood therapy.
Canopy is also developing CBD products to treat anxiety in pets, another potentially huge market. (CBD is a non-psychoactive chemical found in cannabis and hemp.)
Canopy Growth Corporation — by the numbers
2,500: Full-time employees
4.3 million: Square feet of Health Canada-licensed production space, spread over 13 facilities across the country that grow and process cannabis
15: Bricks-and-mortar Tweed or Tokyo Smoke stores the company operates in Newfoundland, Saskatchewan and Manitoba that sell recreational cannabis
$5.2 billion: Investment made into Canopy by Constellation Brands, the huge U.S. spirits, beer and wine company. Constellation Brands now owns 38 per cent of Canopy.
15: Countries in which Canopy has operations, partnerships, subsidiaries or business activities: Canada, U.S., Germany, United Kingdom, Colombia, Brazil, Australia, Chile, Denmark, Jamaica, Lesotho, Czech Republic, Spain, Poland and Peru.
$19.8 billion: Market value of Canopy Growth Corp. as of Monday
15: Approximate number of clinical trials Canopy has underway or planned to explore the potential medicinal benefits of cannabis
*sources: CIBC World Market, Canopy Growth Corp., Bloomberg
21, 2019 /PRNewswire/ – Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) (“Canopy Growth” or the “Company”) is pleased to update key …
European Update: Spectrum Cannabis enters UK & Poland
High-quality medical cannabis available today in Polish pharmacies; UK presence positions Spectrum to lead in a key emerging market.
SMITHS FALLS, CANADA, OXFORD, UK, TORUŃ, POLAND, Jan. 21, 2019 /PRNewswire/ – Canopy Growth Corporation (TSX: WEED) (NYSE: CGC) (“Canopy Growth” or the “Company”) is pleased to update key European progress in the UK and Poland where its medically-focused business Spectrum Cannabis continues to build a sophisticated, pan-European cannabis production and distribution network serving the needs of physicians and their patients throughout the continent.
In the United Kingdom the Company has formed Spectrum Biomedical UK, a new company focused on providing access to cannabis-based medicinal products to UK patients with severe unmet clinical need.
Spectrum Biomedical UK was formed as a joint venture between Canada’s Canopy Growth and Oxford-based research-company Beckley Canopy Therapeutics to address a groundswell of patient need for high quality, standardised cannabis-based medicinal products in the UK. Under the British government’s new classification, which took effect November 1, specialist doctors in the UK can prescribe cannabis-based medicines to patients managing a wide range of symptoms – from chronic pain, chemotherapy-induced nausea and vomiting, to muscle spasticity for those with multiple sclerosis.
Following the launch, Spectrum Biomedical UK now has the opportunity to introduce Spectrum Cannabis medicinal cannabis products to UK patient groups and doctors. Spectrum UK will also engage in physician education to ensure doctors are exposed to the deep breadth of research showing the therapeutic benefits of cannabis. The combination of these actions will help build capacity within the UK’s healthcare sector, providing patients reliable access to Spectrum Cannabis products and information physicians can use to support them in their practice.
There is significant real-world and clinical evidence supporting the safety and effectiveness of cannabis-based medicinal products. However, due to the current regulations and lack of education about medicinal cannabis among clinicians in the UK, there remain considerable obstacles to patient access. Spectrum UK has the expertise and ambition to simplify the UK medicinal cannabis landscape and ensure access to cannabis-based medicinal products for patients with great clinical unmet need.
Dr. Mark Ware, Chief Medical Officer, Canopy Growth.
In addition to expanding its medicinal cannabis operations in the UK, Canopy Growth’s Toruń-based team, Spectrum Cannabis Polska, successfully completed its first import of medical cannabis after completing a rigorous regulatory approval process to have the product assessed and approved for sale.
In last week’s import, Spectrum Cannabis Polska received its high-THC whole flower product, Red No. 2. “This shipment is an important first step in a new European market towards building our pan-European operations,” says Dr. Pierre Debs, Managing Director, Canopy Growth Europe. “We continue to follow our overall plan of self-sufficiency in Europe to be able to best provide individuals with high-quality medical cannabis.”
Spectrum Cannabis Polska is a new entity and the fifth of its kind for the Company in European markets. According to the Polish Pharmaceutical Chamber, which represents about 15,000 pharmacies in Poland, it is estimated that up to 300,000 patients could qualify for medical cannabis treatment. The Company is committed to transforming healthcare in Europe by providing better access to medical cannabis treatments that have the potential to improve the lives of millions of patients.
Spectrum Cannabis: Medical Cannabis. Simplified.
About Spectrum Cannabis
Spectrum Cannabis, a wholly-owned subsidiary of Canopy Growth, is dedicated to simplifying medical cannabis for patients and healthcare practitioners. Spectrum Cannabis is an international medical business which interfaces with healthcare professionals and patients around the world. Founded in Canada, Spectrum Cannabis operates in Australia, South America, Africa and across Europe. Spectrum Cannabis products are available in a wide range of potencies and formats designed to simplify the dialogue around strength and dosage by applying a colour-coded Spectrum to categorize medical cannabis according to THC and CBD levels. Its product lineup includes whole flower cannabis, oils and new innovations such as Softgels. Through product simplification, easy dosing formats, and ongoing education of healthcare professionals, Spectrum is committed to improving the lives of medical cannabis patients around the globe.
About Canopy Growth Corporation
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and Softgel capsule forms. Canopy Growth offers medically approved vaporizers through the Company’s subsidiary, Storz & Bickel GMbH & Co. KG. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time. The Company has operations in over a dozen countries across five continents.
The Company is proudly dedicated to educating healthcare practitioners, conducting robust clinical research, and furthering the public’s understanding of cannabis, and through its wholly owned subsidiary, Canopy Health Innovations (“Canopy Health”), has devoted millions of dollars toward cutting edge, commercializable research and IP development. Canopy Growth works with the Beckley Foundation and has launched Beckley Canopy Therapeutics to research and develop clinically validated cannabis-based medicines, with a strong focus on intellectual property protection. Canopy Growth acquired assets of leading hemp research company, ebbu, Inc. (“ebbu”). Intellectual Property (“IP”) and R&D advancements achieved by ebbu’s team apply directly to Canopy Growth’s hemp and THC-rich cannabis genetic breeding program and its cannabis-infused beverage capabilities. Through partly owned subsidiary Canopy Rivers Corporation, the Company is providing resources and investment to new market entrants and building a portfolio of stable investments in the sector.
From our historic public listing on the Toronto Stock Exchange and New York Stock Exchange to our continued international expansion, pride in advancing shareholder value through leadership is engrained in all we do at Canopy Growth. Canopy Growth has established partnerships with leading sector names including cannabis icon Snoop Dogg, breeding legends DNA Genetics and Green House seeds, Battelle, the world’s largest nonprofit research and development organization, and Fortune 500 alcohol leader Constellation Brands, to name but a few. Canopy Growth operates ten licensed cannabis production sites with over 4.3 million square feet of production capacity, including over 500,000 square feet of GMP certified production space. The Company operates Tweed retail stores in Newfoundland and Manitoba and has entered into supply agreements with every Canadian province and territory. For more information visit www.canopygrowth.com
But it will get closer in 2019, when consumer spending is projected to grow by 38 percent, according to a new report from Arcview Market Research, …
People are going to be buying a lot more legal weed in 2019, according to a new report.
Legal cannabis markets are still a relatively new phenomenon, and the market is likely nowhere near its total sales potential. But it will get closer in 2019, when consumer spending is projected to grow by 38 percent, according to a new report from Arcview Market Research, which says that consumer spending in the legal cannabis market will go from $12.2 billion USD in 2018 to $16.9 billion USD in 2019.
That’s because major changes in the market that happened in 2018 will either develop or correct themselves in ways that generate more revenue for the industry. Canada’s legal marijuana markets didn’t start up until late 2018, so a full year of sales will be a huge boost for the industry – especially if the provinces and territories solve the nationwide cannabis supply shortage before the end of the year. On top of that, California’s market is expected to rebound after becoming over-saturated in 2018, which drove down the prices of (and subsequent revenues from) cannabis sales.
Meanwhile, Michigan – which legalized recreational cannabis last November – will soon join the legal market. And it could be joined soon after by New York and New Jersey, where Governors Andrew Cuomo (D) and Phil Murphy (D) are working with state lawmakers to repeal cannabis prohibition. If they get their markets up and running before the end of 2019, then the industry’s growth will be massive.
Outside of America, medical marijuana was legalized in several Asian countries last year and in the UK. On top of that, Mexico is poised to legalize recreational cannabis in the near future.
So 2019 looks like it will be a watershed moment for the new industry. But its gains will likely be dwarfed by the growth expected in 2022, when Arcview predicts that the global industry will be worth $31.3 billion.