Canopy Growth Corporation: A DCF Based on Industry Growth Forecasts – Canopy Growth Corporation (NYSE: CGC)

Investment Task

A few weeks ago, I published a DCF analysis at Canopy Growth Corporation (CGC), called Is Canopy Stock, blowing bubbles and smoke? Where I made important arguments about the CGC's top line, CGC will get the bulk of the recreation side of its business, which is likely to be limited to the Canadian market because of the uniqueness that international regulations will be relaxed to allow sales in international markets when anytime soon. I also forecast the value of the Canadian recreational market based on the growth rate in Colorado after legalization. The growth rates were 90% 50%, 30%, 20%, 10%, 10%, 10% and 1% forever.

Source: Colorado Department of Revenue

Where this approach may be wrong, the lack of development in the Canadian recreation market for cannabis leads to a very low starting point for this analysis. Consider that Statistics Canada estimates total sales of only $ 115 million in Q4 2018, given that this was not a full quarter when legalization occurred on October 17, 2019. 5 months of available data show that around 27.7 thousand pounds have been sold such as dried flowers or oils (supposedly 1 gram / 8 ml of oil) and at $ 8 / gram will indicate ~ $ 221.6 million in revenue, annually about ~ $ 379 million. Using this as a starting point and using the annual growth rate from the Colorado case, would provide a market value of just $ 1.9 billion for 2025, which, as discussed in Is Canopy Stock Blowing Bubbles And Smoke, would not support the CGC's $ 20 billion market value. The reason for the low sales out of the port is primarily product shortage from licensed manufacturers and which products are legal consumers (flower and oils), which are not close enough to lure consumers away from the black market. [19659005] Source: Health Canada

The purpose of this article is to discuss market prospects from Deloitte, Brightfield Group, BDS Analytics, CIBC and New Frontier Data.

Industrial Forecasts

Deloitte, Brightfield Group, BDS Analytics, CIBC and New Frontier Data are all well considered for their market insights. Deloitte believes the Canadian cannabis market – including medical, illegal and legal recreational products – is about $ 7.17 billion in revenue. $ 0.77 million of this is in medical sales. The rest that is obviously the recreation side and well above the majority (over 90%) is currently served by the black market. However, they believe that a flip in the end 2020 script of up to $ 4.34 billion (68%) of sales comes from the legal recreational market. [19459959] [19459959] [19459959] [19459289] [19459229] [19459229] [19459959] [19459176] ] Source: Deloitte Analytics

CIBC forecasts the Canadian recreational market of $ 6.5 billion by 2020, 810 kg sold indicates $ 8 / gram and $ 1 billion in EBITDA from the private sector, with output accounting for over 85% of These amounts, and the rest come from retail – largely in Western Canada.

Source: Cannabis Almost Showtime [19659012] Summary, here are the results of the various studies. We show the expected market value of the Canadian cannabis recreational market in the various organizational studies, the implied number of kilos sold, assuming an average selling price of $ 8 / gram, the year in which the market value is expected to be realized before the market goes into steady state growth and the implicit annual growth rate to reach the market value from the current level of ~ $ 379 million in annual sales.