Piper Jaffray starts Canopy Growth at OW; PT $40

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Piper Jaffray launched coverage of Canopy Growth (NYSE:CGC; TSX:WEED) with an “overweight” rating and $40 price target. The stock was quoted at $32.16, up $2.52, around midday on Jan 9.

"While it is difficult to predict how Canopy may be positioned long term, we believe its large size currently (relative to competitors) is likely to help drive near-term momentum that can provide resources to help fuel long-term growth," analyst Michael Lavery writes. He told clients to expect attractive growth ahead.

As of September 2018, Canopy had 4.3 million square feet of licensed capacity in Canada, which it is expanding to 5.6 million square feet. “That's roughly, 35% of industry capacity,” he added.

Mr. Lavery highlighted Canopy's beverage partnership with Constellation Brands as well as its growing intellectual property portfolio after its recent acquisition of the assets of ebbu, a leader in hemp research and innovation.

He said Canopy believes it can formulate both a THC-infused beverage that can substitute for alcoholic drinks and a CBD-infused sports recovery beverage that will ultimately compete with Gatorade.

"Canopy's partnership with Constellation Brands gives it a competitive advantage in beverages, and it has already begun construction on a new bottling facility at its headquarters, which it designed with Constellation's expertise," he added.

Canopy Growth co-CEO Bruce Linton earlier indicated the company hopes to enter the U.S. market in 2019 following the recent passage of the $867-billion U.S. farm bill, which was signed by President Trump on Dec. 20.

The bill includes a provision that removed industrial hemp from the federal government's list of controlled substances, making it a lawful agricultural commodity.

Canopy Growth began adding strategic hemp assets to its portfolio in 2016 with a focus on consumer-packaged goods. The company also began investing in field-scale operations in late 2017 in order to vertically integrate its hemp business to mirror its existing cannabis business.

Abby Hardy