Why Canopy's 'Brand-First' Strategy Could Set It Apart From Tilray And Aurora – Here's What Investors Should Watch

Canopy Growth Corp. CGC has built a strategic portfolio of U.S. cannabis assets through its Canopy USA (CUSA) entity. This portfolio includes prominent brands like Wana, a leading edibles producer, Jetty, known for its solventless vapes and multi-state operator Acreage Holdings ACRHF.

According to senior analyst Pablo Zuanic from Zuanic & Associates, these assets position Canopy USA for growth, with potential further upside from federal regulatory changes.

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Focus On Brand Expansion

Zuanic says Canopy USA’s strategy is to scale its brands, such as Wana and Jetty, by expanding product lines and entering new markets. “The goal is to build a portfolio of differentiated brands with unique attributes in key segments,” Zuanic states, suggesting the company will focus on expanding in existing states rather than new ones, with Florida being a potential exception.

Valuation And Asset Composition

Zuanic values Canopy USA’s assets at approximately $617 million. Acreage, the largest asset, is projected to be worth over $411 million, while Wana and Jetty are valued at $125 million combined. Canopy USA also holds a minority stake in TerrAscend TSNDF, valued at $81 million.

For context, Canopy Growth's overall enterprise value (EV) is CAD 987 million ($724 million), with Canopy USA accounting for a significant portion. Excluding Canopy USA, Canopy Growth is valued at just CAD 16 million ($11.7 million), significantly lower than competitors Tilray TLRY (3.5x sales) and Aurora ACB (1.9x sales).

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Asset-Light, Brand-First Strategy

One key takeaway is Canopy USA's “asset-light” approach. Zuanic explains that Canopy USA will focus on brand expansion rather than investing heavily in cultivation. “The Canopy USA structure allows the company to scale brands without building large grow facilities, leveraging partnerships and reciprocity deals.”

Retail ownership remains critical, especially in markets with limited licenses. Acreage's retail footprint ensures brand visibility in key dispensaries.

Canopy USA's Key Assets

Wana, a top edibles brand, generated approximately $150 million in retail sales across 19 states in 2023. Jetty, known for its solventless vape technology, commands a price premium in California and is expanding into New York and New Jersey. Acreage, a multi-state operator, reported $39 million in 2Q24 sales with 5% EBITDA margins.

Financial Metrics And Growth Outlook

Acreage's second-quarter 2024 sales were $39 million, down 33% year-over-year, but gross margins improved to 43.4%. The focus, according to Zuanic, will be on growth in Ohio and Pennsylvania, where adult-use legalization could boost revenues.

Although Wana has faced market share challenges in Colorado, where its share dropped from 30% to below 20%, Zuanic remains optimistic about its future growth. Jetty holds 3.3% of the California vape market and continues to expand in other states.

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Comparison With Canadian LPs

Canopy Growth’s U.S. strategy via Canopy USA sets it apart from Canadian peers like Tilray and Aurora by focusing on brand scalability rather than vertical integration. “Most Canadian LPs are slow to enter the U.S. market or focus on capital-intensive strategies,” Zuanic explains, adding that Canopy Growth's asset-light model offers long-term sustainability.

Canopy's financial structure, with an EV of CAD 987 million, is partly distorted by the value of its U.S. assets, which do not yet reflect full market potential.

Future Federal Legalization Impact

Zuanic emphasizes that federal regulatory changes could significantly boost the value of Canopy USA's assets. While Canopy Growth holds non-voting shares in Canopy USA, the structure provides flexibility to consolidate its U.S. assets if cannabis is federally legalized.

For more insights into Canopy USA's valuation methodology, Acreage Holdings' market footprint, detailed brand performance and potential federal impacts, Zuanic's full report offers a comprehensive analysis.

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