Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) stock, besides being the top performing stock among the Canadian ACMPR-licensed cannabis companies publicly traded in Canada, is also in poll position to become Canada’s premier distributor of consumer-oriented cannabis products in the world, It is for that potential that we see the article in Barron’s calling Canopy “overvalued” as short-sighted, and largely inaccurate.
The limited perspective of the authors of the story demonstrate the inability of many industry analysts to comprehend that, while as a grower of cannabis products, the upside might be seen as limited, the management team of Canopy Growth will likely utilize their leading position as a global producer and distributor of cannabis and cannabis-derived products to transform the company into a major player in nutraceutical product distribution as well as recreational product manufacturer.
Bruce Linton shed light on why Canopy Growth Corp is likely to continue on its astonishing growth trajectory as he strives for global domination through the deployment of an international cannabis industry strategy.
It wouldn’t be the first time a commodity product producer capitalized on their industry leading position to grow vertically into the 900 pound gorilla in categories above and laterally to its original niche.
One need look no further than Canopy investor and Fortune 500 company Constellation Brands, makers and owners of numerous iconic recreational beverage brands such as Corona beer, Robert Mondavi and Kim Crawford wines, and over 100 other recognized brands around the world.
Constellation was founded in 1945 as a one trick pony wine producer in the Finger Lakes area of upstate New York, and has since grown to employ over 10,000 people worldwide with a market cap of over $44 billion. The stock trades at $225 a share today. In its first year, the company sold 200,000 gallons of wine for US$150,000.
McKesson Corporation, founded in 1833, is number 5 on the Fortune 500 list, with reported revenue of US$198.5 billion in fiscal 2017. It began as a small importer and wholesaler of botanical drugs in New York City. The company used its leadership position in distribution to acquire medical technologies – its primary driver of growth since the mid-20th century. Through acquisition, the company continuously reshaped its brand and its corporate mandate, even for a while being one of the major dairies in the United States.
Now, McKesson encompasses divisions across medical technologies, services, retail outlets (they own the 2,300 Rexall pharmacies across Canada, for example), and even operated the Mosswood Wine Company from 1978 until 1987. McKesson operates a network of 13 distributions centers across Canada, providing logistics and distribution for manufacturers.
Cannabis Unicorns and Speculative Valuation
There’s no denying that future Cannabis unicorns (and current ones) are entities that start small and grow beyond everyone’s expectations to incredible valuations. That’s why it is particularly naive for a publisher like Barron’s to opine so decisively on the value of an industry emerging from a state of prohibition into legal and widespread availability.
This is equivalent to calling Seagram’s undervalued just prior to the end of the prohibition of alcohol in the United States in 1933. Then, as now, Canada was the visionary and liberal land of foresight and vision, having terminated prohibition generally in most provinces in 1927. For five years, the discrepancy in the laws between the United States and Canada created the opportunity for the Seagram’s company to export booze to America through St. Pierre and Miqeulon off the coast of New Brunswick using U.S. bootleggers.
The Seagram’s business became the property of the storied Canadian Bronfman family, who grew the business into a multi-billion dollar multinational conglomerate who at one time controlled 25 percent of the DuPont Chemical Company, an interest it sold eventually for US$9 billion. The controlling interest in Seagram’s was eventually sold by Edgar Bronfman Jr. in 2000 to french entertainment conglomerate Vivendi. By then, Seagram’s had over 250 beverage brands and extensions in its portfolio, and in the mid-1990’s was the largest alcoholic beverage producer in the world.
These companies all demonstrate a common strategy, whereby achieving dominance in one segment paves the way for deal making and acquisitions across a broad range of industries. To proclaim an entire industry over-valued – especially in its nascent stages – is the epitome of foolishness.
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