Why 2018 Could Be This Marijuana Stock's Best Year Yet

Markets Motley Fool

For Canadian marijuana supply company Canopy Growth (NASDAQOTH: TWMJF), 2017 will be a hard year to top. Fueled by acquisitions, the company's revenue grew precipitously, its home country moved toward legalization of recreational cannabis, and a major beverage conglomerate bought a considerable stake in the company, resulting in a big cash infusion.

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This activity has driven Canopy Growth stock up to all-time high levels. Yet I think it has more room to grow, as this year promises to be even better than last.

Expanding alone, and jointly

The big catalyst -- and, I believe, the main reason Canopy Growth's stock is so popular -- is the impending legalization of recreational marijuana in Canada. Although it looks as if this will occur later than the government's target deadline of July 2018, it'll be an absolute boon for suppliers like Canopy Growth once it hits -- despite the many issues related to pot sales that remain to be settled.

Recreational sales alone in the country could reach CA$6 billion ($4.8 billion) annually by 2021, according to Deloitte. For scale, Canopy Growth's latest annual revenue figure was just under CA$40 million ($32 million).

Canopy Growth has been busy gearing up for this expansion, through both acquisitions and deals. In one of numerous examples, in early 2017 Canopy closed the acquisition of fellow producer and vendor Mettrum Health, since renamed Spectrum Cannabis. This boosted its count of licensed production facilities to six, covering around 665,000 square feet.

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More recently, Canopy signed a supply and production agreement with the province of Newfoundland and Labrador, allowing it to build a new facility there that will have annual capacity for 12,000 kilograms of product.

The "supply" end of the deal, by the way, obliges the company to furnish 8,000 kilograms annually for the province's medical marijuana in the first two years it's in force. On top of that, Canopy Growth's subsidiary Tweed is eligible to apply for the right to operate four stores within the province's borders.

Looking abroad

The company is also venturing overseas for growth. Recent initiatives in this sphere should bear fruit since foreign markets are going the way of North America and loosening their restrictions on the marijuana industry.

In a recent interview with The Motley Fool, Canopy Growth CEO Bruce Linton spoke in particular of the company's activities in Germany, the European Union's most populous country. Canopy already ships cannabis there under an import license, and it also holds a license to distribute the goods. So it'll be very well prepared if it's permitted to grow marijuana in that country, too.

In early 2017, Germany legalized medical marijuana, and there have been discussions about also opening up the recreational market. Elsewhere in Europe, numerous countries have loosened their marijuana laws or are considering doing so.

Either way, the continent as a whole seems to be on a slow march to eventual full legalization. If it gets there, it'll consume plenty of product. According to a recent report from marijuana industry researcher Prohibition Partners, a fully legal and regulated European market could be worth over 56 billion euros ($67 billion) in annual sales.

This would obviously benefit any company with a good toehold on the market -- like Canopy Growth.

A big-name partner casts a vote of confidence

2018 should see the first stages of the collaboration between Canopy and top adult-beverage maker Constellation Brands (NYSE: STZ). Canopy Growth received a cash infusion of nearly CA$245 million ($195 million) in exchange for a stake of just under 10% of the company in a deal that closed in November.

That's a lot of cash, and Constellation Brands is an influential company in its field, so both parties have plenty of incentive to get their partnership started. The initial goal is to develop cannabis-infused beverages for the Canadian market. This product should appeal both to adventurous drinkers and cannabis users who want a different way to consume the substance.

If the product proves to be popular, Canopy Growth and Constellation Brands could roll out the drink into other markets -- like rapidly liberalizing Europe, for example. It would also encourage the two companies to develop other types of cannabis consumables.

New highs

The future is bright for the global marijuana industry. With its recent moves, Canopy Growth is positioning itself well to take advantage of new opportunities not only in its native country but also abroad. And with the Constellation Brands arrangement, we see it's able to strike deals with big companies that have serious clout -- and give it a chance to broaden its product range.

Canopy Growth is a restless enterprise constantly on the move, operating in an increasingly favorable environment throughout the world. I wouldn't be surprised at all if 2018 ends up being a banner year for the company.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.