Is It Too Late to Buy This Billion-Dollar Marijuana Stock?

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Canopy Growth (TSX: WEED)(NASDAQOTH: TWMJF) is boosting capacity to serve an increasingly larger marijuana market in Canada (and elsewhere). However, its market cap is already north of $1 billion, and it's still losing money, so investors are right to wonder if it's too late to buy shares. Read on to learn how Canopy Growth plans to dominate the marijuana marketplace and if its shares are right to own in your portfolio.

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An evolving cannabis market in Canada

Marijuana remains illegal in the United States under federal law, but it's been legal to buy medical marijuana throughout Canada since 2001. Canada's medical marijuana market was slow to emerge. However, changes to its marijuana laws a few years ago mandating purchases through licensed suppliers kick-started the industry. As a result, big money is being spent by companies so that they can become leaders in this growing market.

Canopy Growth has been one of the most aggressive in making investments, and so far, it's paying off. The company's been acquiring competitors and investing in additional capacity. Consequently, it has become Canada's largest marijuana stock. It markets the popular medical marijuana brand, Tweed. It has also cut a deal with Snoop Dogg on Leafs by Snoop, and launched Tweed Main Street, an online marijuana marketplace. Its production facilities include a massive grow facility in Ontario that used to make Hershey's chocolate, and it just increased its flowering space by one-third.

Canada's medical marijuana market is already worth about $80 million today, but plans to legalize recreational use soon have some industry analysts predicting that that country's market could grow to $5 billion annually someday. If it does, you can bet that Canopy Growth will be in a very good position to profit from it.

Tapping into the global marijuana market

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Canada's marijuana market may be worth billions of dollars at some point, but it's far from the only country where marijuana legalization is creating a big opportunity for Canopy Growth.

Nearly 30 states in America have passed medical marijuana laws and another eight states have also passed recreational marijuana laws. Billions of dollars are up for grabs as well in developed Europe and elsewhere, including South America and Australia.

To tap into marijuana markets worldwide, Canopy Growth acquired MedCann to gain entry into the German market last year. Patients can get medical marijuana in Germany, but up until now, domestic production of marijuana hasn't been allowed. That's changing, though, because Germany's government has decided to offer 10 licenses to produce marijuana within its borders. Canopy Growth is in contention for one of those licenses, and a decision from regulators is anticipated in September.

Canopy Growth also took a big stake in Bedrocann SA last year to facilitate exports into the Brazilian medical marijuana market. Its plans include conducting clinical trials of marijuana as medicine that could result in approvals as soon as 2018. Canopy Growth also has a 11% interest in AusCann, a company targeting marijuana production in Australia.

As of now, marijuana sales in these markets are rounding errors, but the potential exists for these countries to become significant marijuana consumers because they boast large and wealthy populations. 

Is it a buy?

Canopy Growth has a lot of irons in the fire that could help it become a considerably larger company than it is today, but it's spending mountains of money, and that means it could be a long time before it achieves consistent profitability. In its recently reported fiscal 2017, it lost $16.7 million, or $0.14 per share, on $40 million in sales. Frankly, there's no telling when this company will be in the black.

Based solely on financials, Canopy Growth's $1.2 billion market cap gives it a nosebleed valuation of 30 times sales. That suggests that much of this company's potential is already being priced into its shares.

Overall, Canopy Growth appears to be among those best positioned to profit from growing demand for marijuana but, ultimately, no one knows who will end up dominating the global marijuana market. Therefore, this marijuana stock is intriguing but very risky, and is therefore suitable for only a small percentage of risk-tolerant investors.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.