Canopy Growth, Cronos could dominate the market

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The two marijuana powerhouses will continue to lead the industry

The Canadian Imperial Bank of Commerce (CIBC) has only just begun following the marijuana industry. It launched its coverage of the sector last Thursday, but already has a strong opinion on who is going to be in control of the markets. The bank has issued a rating of “outperform” to both Canopy Growth Corp. and Cronos Group.

In beginning its coverage, CIBC analyst John Zamparo stated, “Investors rarely get to witness the birth of an industry.” He adds that, while there will be a number of companies to enter and leave the industry, Canopy and Cronos will most likely emerge is the long-term winners. He states, “Dozens of small/medium-sized firms will likely earn moderate revenues and earnings, but only a handful will come to dominate the global market.”

Both Canopy and Cronos have locked down several major deals over the past seven months that are showing how strong the companies are and which are attracting serious investors. Canopy is tied up with Constellation, the alcohol giant that invested $4 billion into the company, and Cronos has signed a $1.8-billion deal with Altria Group, the company behind Marlboro cigarettes.

Zamparo adds that the Cronos deal “solidified our conviction” in the company, adding that an emphasis on the part of the company regarding intellectual property and distribution are traits that make the company stand out. On the other hand, Canopy is “the best-capitalized in the space, with few limits on what It chooses to buy and build,” giving it great leverage to expand internationally.