Canopy Growth Rises on News of Key Extraction License

Canopy Growth (WEED)(CGC) was trading 3% higher early this morning after it announced the receipt of a key extraction license. The license is related to its Saskatoon facility, KeyLeaf Life Sciences.

What does this mean for Canopy Growth?

The extraction license could add key value-added recreational products, expanding the company’s margins. As a result, Canopy may be able to achieve profitability, a sticking point for investors. In its press release, the company stated the capacity would increase its efficiency and reduce its operational costs of extraction. As a result, Canopy could introduce value-added products for lower costs into the Canadian market by the end of this year.

At the KeyLeaf facility, Canopy would have the capacity to extract 5,000 kilograms of cannabis per day. The company stated that KeyLeaf is close to its large-scale outdoor cannabis and hemp operations.

Calming investors

The growing costs of expansion have burdened Canopy’s bottom line. In the company’s press release today, CEO Mark Zekulin appeared to be attempting to calm investors. He stated, “With this milestone, we are executing against the vision of making strategic investments today in order to deliver results over the long term.”

Canopy could take a while to reach profitability. As we discussed yesterday, the company believes profitability is about three to five years away.

US hemp

With the announcement, Canopy also stated that the extraction facility “represents a blueprint model for international expansion as global market demand dictates.” With the extraction facility being close to its hemp operations, the company could use the facility for developing hemp-based products for the US, the next biggest market for Canadian cannabis operators. In an effort to capture that market, Aurora Cannabis (ACB) completed its acquisition of Hempco Food and Fiber yesterday.

However, US legalization could be a key determinant for these companies. Some candidates have expressed their support for legalizing cannabis in the US. Donald Trump has yet to announce his stance on cannabis.