The Canadian marijuana market is booming now more than ever. Canopy Growth’s (TWJMF) shares have rose by 54%, adding $806 million in market value in just five weeks. Canopy is the first marijuana producer to reach the mid-cap zone with a valuation over $2 billion and it is the largest marijuana stock in terms of market capitalization. With sales over 100% per year Canopy Growth (TWJMF) is a growing favorite among investors. What’s the reasoning behind the company’s recent success?
Last month, a historic deal in the marijuana industry was made. The S&P 500 company, Constellation Brands (STZ) announced its $190 million investment into Canopy for small 9.9% stake. The Corona maker and the marijuana grower came together to market and sell marijuana infused beverages, as Constellation believes investing in marijuana was pertinent to staying ahead of market dynamics. With Constellation showing undoubted confidence in the marijuana industry, it opens the flood gates for other major companies to ride the marijuana wave.
The Prime Minister of Canada, Justin Trudeau, announced legislation back in April to permit the use of recreational marijuana for adults. The country is set to become second in the world to legalize recreational marijuana by July 2018. Canopy possess the highest market share for the country’s medical marijuana market, so one would assume that it would as well for the highly anticipated recreational market. Canopy is also one few growers who’s permitted to export dried marijuana overseas to countries that have legalized medical marijuana without domestic growing capabilities.
The tax proposal announced in October, suggested a tax of $1 Canadian for marijuana priced up to $10 a gram and a flat tax of 10% on marijuana above that. This is more favorable than alcohol’s tax in the country. Trudeau believes that the only way to eliminate black market is to be competitive in pricing. Low tax rates will provide legal growers such as Canopy the chance to supply the high demand once legalization commences. To meet anticipated demands, Canopy has been acquiring increased acreage as well developed companies.