The world's largest cannabis company is angling to jump into the US marijuana market after Biden's win

  • Canadian cannabis giant Canopy Growth is positioning to enter the lucrative US market after Joe Biden won the US presidency.
  • The company, with a market value of over $9 billion, is pursuing deals and celebrity brand partnerships, and lobbying members of Congress to pave the way for its entrance.
  • Canopy CEO David Klein told BI in an interview that the company is looking to bring more of its branding and IP over to the US through its partnership with Acreage Holdings. 
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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.

Read more: The ultimate guide to marijuana legalization: Here are all the states that passed cannabis reform, the key dates to know, and which stocks could benefit the most.

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.

Read more: Here's why a Biden administration will be good for the US cannabis industry, even though it's unlikely he'll legalize marijuana federally

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.

Read more: Cannabis stocks soared after Biden's win. Morningstar's chief US market strategist told us the 2 names that are still the most undervalued — and says the industry is well-positioned for gains in the years to come.

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.

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