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What’s Canopy Growth’s First & Free Brand About?

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Yesterday, BNB Bloomberg reported that Canopy Growth (CGC) (WEED) had officially entered the US CBD market with its First & Free brand. The company has introduced its CBD products in 31 states where CBD is legal. As reported on the company’s website, it offers daily usage products, such as softgels, oils, and creams. The company reports it has filled 40 provisional patents and conducted 11 therapeutic trials.

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Canopy Growth’s progress in the US CBD market

In its second-quarter earnings call, Canopy Growth said it had invested significantly in US hemp cultivation. Through contracts with American farmers, Canopy has planted thousands of acres of hemp. The company added that its hemp industrial park in New York and other facilities at undisclosed locations are on track. Management said it is focusing on developing a range of CBD products, including skincare, cosmetics, therapeutic creams, beverages, vape products, oils, and softgels.

On October 2, Canopy acquired a 72% stake in BioSteel Sports Nutrition, which produces and markets sports nutrition products. During Canopy’s earnings call, management stated that BioSteel was developing CBD sports nutrition offerings that it expects to hit US markets early next year.

The US CBD market’s potential

In July, Brightfield Group estimated that the US CBD market’s value would expand from $620 million in 2018 to $23.7 billion by 2023, growing 107% compounded annually. And in May, BDS Analytics and Arcview Market Research projected US CBD would form a $20 billion market by 2024. The market’s massive potential appears to have attracted many cannabis players.

Charlotte’s Web Holdings (CWEB)(CWBHF) is a leader in the US CBD market. Its products were sold in over 1,350 stores in 22 states as of September 30. In July, Aurora Cannabis (ACB) partnered with UFC, an MMA (mixed martial arts) organization, to research the effectiveness of CBD in treating pain, inflammation, and other medical conditions in MMA athletes. The company plans to use the research data to develop hemp-derived CBD topicals.

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Threats

Recently, the FDA stated that it couldn’t conclude CBD products were safe and warned consumers that CBD could cause liver injury, drowsiness, and diarrhea. As a result, analysts expect the FDA to tighten regulations on the sale of CBD products, which could reduce sales. To learn more, read Analysts Believe the FDA Will Get Tough on CBD.

Canopy’s stock performance this year

As of yesterday, Canopy Growth stock had fallen 31.2% year-to-date. The company’s weaker-than-expected first- and second-quarter performance and cannabis sector weakness appear to have dragged down the stock. However, a Bank of America upgrade and Canopy’s update on its Cannabis 2.0 products offset some of that decline. Meanwhile, peers Aurora Cannabis, Charlotte’s Web, and Aphria (APHA) have fallen 51.8%, 19.7%, and 20% this year, respectively.

Analysts’ estimates and recommendations

After Canopy Growth missed sales estimates in the second quarter, analysts cut their revenue estimates. They now expect Canopy’s revenue to rise 56.2% year-over-year to 588.7 million Canadian dollars in the next four quarters. Furthermore, they expect the company to report negative EBITDA in all of the next four quarters.

Of the 21 analysts covering Canopy stock, most (11) suggest “hold.” Of the remaining analysts, nine suggest “buy,” and one suggests “sell.” As of yesterday, their average price target for the stock was 28.92 Canadian dollars, which implies an 18.0% return. For more marijuana news, check 420 Investor Daily.

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