Shares of cannabis and hemp company Canopy Growth Corp. (NYSE: CGC) have doubled since the stock began trading on the New York Stock Exchange back in May. In August, beverage company Constellation Brands, Inc. (NYSE: STZ) announced a $4-billion investment in the company, increasing its stake to 38 percent.

The Analyst

Benchmark analyst Mike Hickey initiated coverage of Canopy Growth's Canadian stock, traded on the Toronto Stock Exchange under the ticker "WEED," with a Buy rating and a U.S. dollar equivalent price target of $77.24.

The Thesis

The bull thesis for Canopy revolves around four key drivers, Hickey said in the initiation note:

Canopy’s leadership in the Canadian cannabis market.

The imminent legalization of recreational cannabis in Canada.

International growth in countries that have legalized cannabis for both recreational and medical use.

A strong investment from Constellation Brands, which accelerates Canopy's production and distribution operations and enables future merger and acquisition opportunities.

Canopy is well-positioned to benefit from the Oct. 17 legalization of recreational cannabis in Canada, Hickey said. (See his track record here.)

“We estimate that the Canadian cannabis market could reach [$3.16 billion] in 2019, while expanding 156 percent to an estimated [$8.1 billion] by 2023," the analyst said.

"We expect Canopy to maintain a material share of the Canadian cannabis market based on initial supply agreements and an early mover advantage in creating national brands and products across a broad category range including beverages.”

Benchmark projects Canopy's global market opportunity could exceed $199.2 billion over the next 15 years, and the investment from Constellation "certainly helps," Hickey said.

“We believe Constellation could acquire Canopy, the perceived possibility of which should provide valuation support for the stock.”

Price Action

Canopy's U.S.-traded shares were up 2.5 percent at $53.80 at the time of publication Tuesday.

Related Links:

Canopy Growth CEO Discusses Canadian Legalization, Beverage Deals

Cowen: Constellation Brands Stakeholders Have Reason To Be Confident In Canopy Growth