Canopy Growth vs Canopy Rivers Stock: The legalization of marijuana has produced a new money making opportunity for the companies that grow and process the cannabis as well as people who invest in them.
However, the sector is very young and there are still legal complications that they have to manage in order to be successful.
Before you invest in marijuana, make sure that you understand these issues as well as the companies themselves.
Dangers Of Investing in Cannabis Stocks
Cannabis stocks face a lot of hype.
Recreational marijuana and the high volume of sales it produces capture headlines as more and more states and countries unveil legalization policies. However, investing in a cannabis company is not the same as betting that there is money in marijuana.
Yes, sales are growing but the companies working in this space are taking on a ton of debt to establish and grow their operations – and the sales figures do not quite meet many investor expectations. However, if they don’t invest in growing their businesses, they experience shortages.
Cannabis companies also have distribution bottlenecks and costs for complying with regulations in addition to the issues that surround meeting demand.
Of course, that’s not to say that the cannabis companies won’t get there.
Demand is certainly there. Legal marijuana is an alternative to alcohol and certain pharmaceuticals as well as a possible health supplement. The biggest pot producers are going to be worth billions before it is all said and done.
Is Canopy Growth Stock a Buy?
Canopy Growth (NYSE: CGC, TSE: WEED) is heavily diversified. The company sells distinct brands of cannabis in dried form as well as oil and gel capsule. It focuses on innovation and has more than 110 patents to prove it.
Right now, its business is divided between the Global Medical Market and the Canadian Recreational Market.
In the former, the company operates under the Spectrum Therapeutics brand. This effort has been met with fair success.Canopy [NYSE: CGC] is a market leader in European cannabinoid for medical purposes.
It got there through acquisition, buying five C3 cannabinoid technologies. The company is working to expand those efforts by installing a 300,000 square foot facility in Denmark.
Initial harvests from that initiative are expected in 3Q20. Canopy Growth is also working towards establishing itself in the Australia market. It already has its import permits in place and prescriptions are being written for the company’s products.
In the latter, Canopy [NYSE: CGC] sells beverages, edible products, and vape – and it is popular. The company boasts more than twice the number of listings as its nearest competitor and the highest “at-the-till” market share.
It also runs retail locations in Canada, including Tokyo Smoke and Tweed. Moving forward, the company is planning to open more than 600 Tokyo Smoke stores in Canada by the end of 2020.
The company is also in bed with Constellation Brands. The beverage company owns 38% of Canopy after investing $4 billion in August 2018. They will market a line of CBD-infused drinks as legalization becomes more common.
The company is expecting to enter the US CBD market in 4Q20. To this end, Canopy Growth is planning to acquire Acreage Holdings.
Should You Invest in Canopy Rivers Stock?
Canopy Rivers (TSE: RIV) was founded by Canopy Growth. In September 2018, Canopy Rivers received a separate stock listing.
The two companies are still very much connected, but they present different investment opportunities. Whereas Canopy Growth is effectively as “Big Cannabis” business in the same vein as big tobacco and other industry leaders, Canopy Rivers positions itself as partner. It maintains a portfolio of investments that are tantamount to royalty streaming deals.
Here’s how it works. Canopy Rivers identifies a partner who is involved in cannabis production or intends to be. In exchange for providing growth capital – a major problem for cannabis companies – and strategic guidance, Canopy Rivers received a cut of future earnings.
In some cases, the company will invest in a business that is not a direct cannabis producer. When that happens, Canopy Rivers either makes an equity investment or buys convertible debt.
There are a few joint ventures as well. Canopy Rivers’ current portfolio is made up of dozens of holdings. They include Agripharm, Canapar, Civilized, Hheadset, High, Leaflink, PharmHouse, Radicle, Terrascend, Vert, YSS, and ZeaKal.
Canopy Rivers describes its business as an ecosystem of “complementary companies operating throughout the cannabis value chain.” As each one grows and makes its mark in the cannabis world, it benefits from opportunities to collaborate with other Canopy Rivers investments as well as the much larger Canopy Growth. These connections form synergies that benefit all the companies involved in terms of cost savings, innovation, and brand reputation.
Everyone wins, and Canopy Rivers benefits most of all.
Some of the companies into which Canopy Rivers invests will grow into behemoths as the market for legal cannabis expands and its medicinal use becomes more mainstream.
In this instance, the investment pays off. In other cases, some of the incubated companies will effectively merge, growing to new heights and ultimately morphing into a partner instead of a competitor for the larger Canopy Growth.
Plus, if one of Canopy Rivers’ investments fail, it has an entire portfolio of other companies that may succeed.
Canopy Growth vs Canopy Rivers Stock: The Bottom Line
The thing that is going to help many cannabis companies grow is merger and acquisition – the same route that has enabled many growth industries to bloom.
Partnerships count too. Firms in this industry have opportunities to partner with beverage companies, tobacco producers, and more.
The cannabis industry is already moving towards this in Canada and the United States could be next as legalization becomes more common. However, investing in these companies is likely going to be a longer term investment as opposed to a short-term play on momentum.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.