Canopy Growth Corp’s Latin American Move Should Pay Off

Canopy Growth Corporation (TSX:WEED) has acquired Spectrum Cannabis Columbia, expanding its presence to three countries in Latin America

SmallCapPower | July 9, 2018: Canopy Growth Corporation (TSX:WEED) Thursday announced that it has launched a Latin American subsidiary, Canopy LATAM Corporation, which will oversee its operations and strategy in the emerging Latin American region. Through Canopy LATAM, Canopy Growth acquired Spectrum Cannabis Columbia, formerly known as Colombian Cannabis S.A.S., expanding its presence to three countries in Latin America. Canopy Growth already has presence in Brazil and Chile through partnerships. In addition to overseeing growth strategies in Brazil, Chile and Colombia, Canopy LATAM will identify new opportunities as, and when, other nations update their regulations and accordingly pursue local operations. Antonio Droghetti, a seasoned executive with vast experience throughout Latin America, will lead Canopy LATAM as Regional Managing Director.

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The Spectrum Cannabis Columbia acquisition is worth more than $150 million, comprising $53.5 million Canopy shares on closing and a potential $98.5 million in future milestone payments. Canopy Growth issued ~1.2 million shares to former shareholders of Spectrum Cannabis Colombia valued at $34.8 million. Upon completion of four milestones, Canopy Growth will issue 524,576 common shares valued at $15.3 million for each milestone, for total milestone payments of $61.2 million. Additionally, Canopy issued the shareholders of Canindica, a company controlled by Antonio Droghetti, 595,184 common shares valued at $18,666,667. Upon completion of four milestones, Canopy will issue Canindica additional common shares valued at $9.3 million.

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In addition to expanding its domestic production capacity to 5.6 million sq ft (2.4 million sq ft already licensed) for the impending recreational legalization, Canopy Growth is aggressively pursuing international expansion. The Company has obtained necessary agreements to export medicinal cannabis to Australia, Brazil and Germany through its international subsidiaries and partners. To date, Canopy Growth has operations in Germany, Chile, Denmark, Jamaica, Australia, Brazil and Spain through acquisitions, partnerships, or alliances such as Spektrum Cannabis GmbH, Spectrum Chile SpA, Spectrum Denmark ApS, Tweed JA, AusCann Group Holdings Ltd., Alcaliber S.A., Bedrocan Brasil S.A. and Entourage Phytolab S.A., and Victoria Agriculture. International agreements are important as the recreational opportunity in Canada will likely not be as large as originally envisioned due to oversupply concerns as other large players, such as Aurora Cannabis and Aphria, continue to boost their production.

Following the news, shares of Canopy Growth rose marginally (2.7%) to close at $39.70 on the TSX.

Canopy Growth is the world’s largest cannabis producer and is the most valued cannabis company in Canada with a market cap of $8.45 billion, or 102x its TTM sales of $78.0 million.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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