5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock

Data source: CIBC World Markets & GreenWave Advisors. Author's chart.

Chart No. 3: Production preparation

Serving a much larger recreational market will require significantly more production capacity. Fortunately, Canopy Growth has made big investments to expand marijuana production, and that's translating into significantly larger marijuana harvests. Last quarter, its marijuana harvest was up 51.2% year over year.

With 600,000 square feet of licensed indoor and greenhouse production capacity already, and plans for up to 5 million additional square feet in the works, I think Canopy Growth should be able to meet the expected increase in demand from recreational marijuana users.

View photos
A bar chart showing that harvests are increasing in size.

Author's chart.

Chart No. 4: Rising revenue

The Canadian marijuana market is growing quickly, but Canopy Growth faces stiff competition that could chip away at its revenue.

(NASDAQOTH: ACBFF) and Aphria Inc. (NASDAQOTH: APHQF) are two of its biggest competitors, and each is making investments to increase their grow capacity. Aurora expects to complete an 800,000-square-foot expansion by the middle of this year, and Aphria expects to have 1 million square feet up and running early this year. However, those competitors' efforts have yet to crimp Canopy Growth's revenue. In its recently reported fiscal third quarter of 2018, sales climbed 123% to 21.7 million Canadian dollars." data-reactid="111">For example,

Aurora Cannabis (NASDAQOTH: ACBFF) and

Aphria Inc. (NASDAQOTH: APHQF) are two of its biggest competitors, and each is making investments to increase their grow capacity. Aurora expects to complete an 800,000-square-foot expansion by the middle of this year, and Aphria expects to have 1 million square feet up and running early this year. However, those competitors' efforts have yet to crimp Canopy Growth's revenue. In its recently reported fiscal third quarter of 2018, sales climbed 123% to 21.7 million Canadian dollars.

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WEED Revenue (TTM) Chart

WEED Revenue (TTM) data by YCharts.

Chart No. 5: Producing a profit

interview with the Motley Fool last year, Canopy Growth's CEO suggested the company should be able to focus more on profitability once recreational cannabis orders begin rolling in." data-reactid="127">Canopy Growth's focus has been on investing for future growth, not delivering shareholder-friendly earnings per share. That may change later this year, though. During an interview with the Motley Fool last year, Canopy Growth's CEO suggested the company should be able to focus more on profitability once recreational cannabis orders begin rolling in.

One reason Canopy Growth's earnings could become meaningful at that point is its operating leverage. As sales and harvests have increased, its cost of production has fallen. Not including shipping and fulfillment expenses, average weighted production costs were only $1.03 per gram last quarter, down from $1.41 per gram a year ago. This allowed the company to report net earnings of $11,014 million Canadian, $0.01 per share, last quarter, in spite of its spending to expand its licensed square feet of production space.

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A bar chart showing falling costs per gram for producing marijuana.

Author's chart.

Overall, Canopy Growth is enjoying rapid demand growth, and so far, it's been able to meet that demand and generate significant sales. Its investments to increase marijuana production and lower production costs suggest it could be very well positioned to profit from recreational marijuana sales later this year, and that's why Canopy Growth is my favorite marijuana stock to buy.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Source : https://finance.yahoo.com/news/5-charts-explain-why-canopy-023100630.html

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5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock
5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock
5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock
5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock
5 Charts That Explain Why Canopy Growth Is My Favorite Marijuana Stock