On June 27, 2018 Canopy Growth (WEED.TSX) – the $7.4 billion diversified cannabis & hemp company – released Q4, 2018 financials.
Registered patients – up, kilograms-sold – up, average selling price – up, revenues – up.
Also, teenagers fell in love, cancer was cured, babies were born and Percocet-laced confetti fluttered from the sky.
There was only one tiny problem.
Canopy Growth registered a quarterly loss of $61 million.
The entire “Canadian Marijuana Index” subsequently soiled itself.
Against this wall of gloom, Crop Infrastructure (CROP.C) gained 6.7%, rising to .24 on 1.6 million shares traded.
CROP invests capital in land and equipment to increase weed operators sector growth, through leasing programs and ongoing management fees.
CROP’s opportunity arises from the fact that federal regulations prevent mainstream lending institutions from investing in weed companies. CROP invests in producers and processors through lease programs and fee-based management options.
“If you want to dumb down the CROP business model – think of it as weed-specific Real Estate Investment Trust (REIT).”
What caused CROP’S gravity-defying stock price movement?
On June 27, 2018 CROP signed a J.V. agreement whereby CROP will own 30% of a 522,000 square foot project in the North-Eastern region of Italy.
The JV has been permitted to develop an extraction and processing facility.
CROP is providing an initial investment of €500,000, to enable the planting of 435,000 square feet, the retrofit of the extraction facility and the construction of an 87,000 square foot greenhouse facility.
Initial yield is expected to be a combined 44,000 pounds of low THC, high CBD cannabis light per year.
“Crop has identified that many countries throughout Europe specifically focusing on the CBD markets are prime new entry points for our growing organization,” stated CROP Infrastructure Director & CEO Michael Yorke.
“Europe is at a turning point,” confirmed Andrea Castiglione, Chairman of the Italian cannabis partner, “We now recognize the medical benefits of cannabis and rather than stand by and continue to see European countries import from across the World we will hire locally and train locally to provide European buyers the means to obtain medicine.”
Castiglione went on to point out that cannabis “has become a replacement for traditional opioids as it pertains to pain management.”
In our opinion, the potential for cannabis to replace opioids is going to be one of the big drivers that melts global resistance to legalised pot.
Twenty-five years ago, a U.S. drug overdose victim was typically from a ghetto. The new victims are farmers, construction workers, traffic cops, lawyers, housewives.
West Virginia has the highest opioid overdose rate in the US. Over a period of five years, Big Pharma shipped 780 million doses of opioids to West Virginia, resulting in about 2,000 deaths.
According to the Center for Disease Control and Prevention, the U.S death toll from opioids has increased 300% in the last 10 years. In 2016, national drug overdose deaths rose to a new high of 52,404 (100 per day) a higher body count than homicides or car crashes.
Legalisation in the U.S. has begun. Trump may retard the progress. U.S. Attorney General Jeff Sessions may retard the process. But in the next few years, we anticipate it spreading like wild-fire.
Strong opiates are more tightly controlled in Europe – but they have other problems – like codeine addiction.
“It’s a hidden addiction,” stated Dr. Michael Bergin of Waterford Institute of Technology, Ireland. ‘Codeine abuse affects people with diverse profiles, from children to older people across all social classes.’
Ten weeks ago, Equity Guru principal Chris Parry weighed in the Crop Infrastructure business model, “CROP isn’t leasing property and spending their money upgrading someone else’s site. They’re purchasing real estate and owning the whole enchilada, which means they’re anchored into an asset that’s worth something.
A month ago we reiterated that , “Growing weed on real-estate that you own is an interesting value-proposition for CROP shareholders.”
The average value of U.S farmland increased 47% between 2009 and 2017, according to the 2018 U.S. Baseline Outlook compiled by Food and Agricultural Policy Research Institute.
Appreciation on commercial land becomes a store of value. If weed farmers are making bank – the appreciation accelerates.
Despite its good trading day – CROP has been caught in a sector-wide malaise – falling from a high of .84 on March 16, 2018 to the current price of .24.
We like CROP’s expansion into Europe.
From March valuations – CROP is currently 80% off.
Is a gravity-defying global weed company worth a look?
We think so.
Full Disclosure: Crop Infrastructure is an Equity Guru marketing client and we own stock.