Canopy Growth, the world's largest cannabis company by market value, is laying the groundwork to enter the lucrative US cannabis market, after Joe Biden defeated Donald Trump in the presidential election earlier this month.
On top of that, five states, including New Jersey and Arizona, voted to legalize marijuana during the election, a strong sign of what some in the industry say is a "green wave" of support for cannabis legalization among US voters.
The US is set to become a $100 billion cannabis market by 2030, according to estimates from the investment bank Cowen, up from about $61 billion this year. Canadian cannabis companies like Canopy are finding creative ways to get their brands in front of US consumers so they can hit the ground running as soon as that's allowed.
"Legal marijuana is becoming the American norm," Canopy CEO David Klein said on a call with investors earlier this month. Canopy reported its quarterly earnings earlier this month, posting net revenue of 135 million Canadian dollars and a C$96.6 million net loss.
A recent Gallup poll shows that 68% of voters support marijuana legalization.
Canopy Growth and other Canadian companies have to get creative to take advantage of the US cannabis opportunity
To that end, Canopy Growth is pursuing deals and celebrity brand partnerships, and lobbying members of Congress to pave the way for its entrance into the US. The company is backed by Constellation Brands, the alcohol company known for beers like Corona and Modelo.
Canopy, as a Canadian company listed on the Nasdaq, is unable to sell or cultivate marijuana in the US as the drug is considered a Schedule I controlled substance by the US federal government. It could lose its listing on the Nasdaq, or potentially risk prosecution under federal narcotics or money laundering laws.
That has forced Canopy Growth and its Canadian peers to get creative in order to take advantage of the US market to prepare for a day when they'll be allowed to operate here.
The company is planning to sell THC-infused beverages — the main psychoactive ingredient in marijuana — in California and Illinois via a partnership with US cannabis company Acreage Holdings. Canopy has a deal to acquire Acreage as soon as it's "federally permissible" in the US to do so, though the definition of federal permissibility can be a moving target due to the lack of clarity around cannabis from the federal government, Klein said in an interview with Business Insider.
Klein said that when some form of federal permissibility occurs — whether it's outright legalization, or more likely a form of banking protection for cannabis companies — his company will be able to close the Acreage deal within 60 days.
And through its partnership with Acreage, Canopy is marketing its Tweed brand of cannabis products in legal states.
"We're going to see more and more the whole behavior of us bringing our intellectual property to the US," Klein said.
On top of that, Canopy has a partnership with Martha Stewart to sell a line of CBD gummies in the US, with flavors like kumquat and blood orange.
Canopy is also an investor in TerrAscend, a cannabis company with significant assets in New Jersey, and the company also has a majority stake in BioSteel, which produces energy drinks for the US market, and Storz & Bickel, a vaporizer company which sells products in the US.
Canopy Growth is focused on the MORE Act
Klein says in his view, "some variant" of the MORE Act is most likely to pass Congress, as opposed to other competing pieces of cannabis legislation floating around Capitol Hill. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would remove marijuana from the list of federally controlled substances and expunge the records of those convicted for marijuana-related crimes.
He said Canopy's lobbying efforts, along with those of Constellation Brands and Acreage Holdings, will be focused on the MORE Act, which is set for a vote on the House floor in December.
"It's the industry, it's us, it's Constellation, it's some other CPG [consumer packaged goods] players, it's some banks, who all have an interest in getting some legislation to change," Klein said.
To get the MORE Act passed will be an uphill battle if Republicans maintain control of the Senate, Cowen analyst Vivien Azer said in a note, meaning that Canopy Growth probably won't be able to enter the US — at least on the THC side, if Republicans maintain control of the Senate. Azer, for her part, has an outperform rating on Canopy's stock.
Analysts say Canopy is the best positioned of the Canadian cannabis companies to enter the US
Of the Canadian cannabis companies with eyes on the US, most analysts say Canopy is the best positioned.
"Arguably Canopy's numbers today were irrelevant," analysts from the investment bank Jefferies wrote in a November note after Canopy reported its earnings. "Where there is likely much focus and excitement is the positive updates around US legislation coming out of the US election."
Despite that, Canopy is likely to have lots of competition from US cannabis companies, known as multistate operators or MSOs in industry parlance.
A slew of MSOs like Curaleaf, Green Thumb Industries, and Cresco Labs reported strong earnings this week, despite being unable to list on marquee US exchanges or access deeper-pocketed institutional investors like their Canadian counterparts.
And, as long as federal legalization doesn't occur, analysts say that could give MSOs a leg up on their Canadian counterparts.
"We believe well-positioned companies servicing the U.S. industry have an extended window for value creation with Canadian producers left to drive enthusiasm through an increasingly competitive Canadian market," analysts from the investment bank Stifel wrote in a November note.
The analysts continued their sell rating on Canopy's stock.
- Read more:
- The world's biggest cannabis companies are jockeying to dominate the $61 billion US market after marijuana legalization swept 5 states
- 9 top cannabis execs break down what marijuana's election sweep means for their companies and the industry's future in the US
- 'I want to be ready to pounce': The CEO of a major Canadian cannabis firm lays out why he just spent $300 million to gain a foothold in the US
- Cannabis companies are facing an uptick in audits related to an obscure Reagan-era tax rule, piling up costs and headaches for the growing industry
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