Why Canopy Growth Partner Neptune Wellness' Stock Soared 71% in the First Half of 2019

This marijuana stock continues extracting more money from investors thanks to 2019 extraction deals with Tilray and The Green Organic Dutchman. Read More...

What happened

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Shares of Canadian extraction specialist Neptune Wellness Solutions (NASDAQ: NEPT) gained 71.3% in the first half of 2019 (January through June), according to data from S&P Global Market Intelligence.” data-reactid=”12″>Shares of Canadian extraction specialist Neptune Wellness Solutions (NASDAQ: NEPT) gained 71.3% in the first half of 2019 (January through June), according to data from S&P Global Market Intelligence.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This performance takes a cue from the Roman god for which the company is named as it rises from the sea of top names in the marijuana space. Shares of the three largest cannabis grower stocks by market cap — Canopy Growth (NYSE: CGC), Aurora Cannabis, and Cronos Group — rose 50%, 57.7%, and 53.8%, respectively, in the first six months of the year. For additional context, the S&P 500 returned 18.5% over this period.” data-reactid=”13″>This performance takes a cue from the Roman god for which the company is named as it rises from the sea of top names in the marijuana space. Shares of the three largest cannabis grower stocks by market cap — Canopy Growth (NYSE: CGC), Aurora Cannabis, and Cronos Group — rose 50%, 57.7%, and 53.8%, respectively, in the first six months of the year. For additional context, the S&P 500 returned 18.5% over this period.

Neptune, which has traditionally focused on nutraceuticals, leveraged its experience in extraction, purification, and formulation of value-added products to enter the cannabis market.

Several cookies and chocolates on a wood surface with a cannabis leaf and a tag saying "edibles" on top of them. — Several cookies and chocolates on a wood surface with a cannabis leaf and a tag saying “edibles” on top of them.

Image source: Getty Images.

So what

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="As background: Neptune Wellness stock has been in a general uptrend since the company threw its hat into the cannabis ring in 2017. Investor enthusiasm was stoked in June 2018 when Neptune announced that it had entered a multiyear agreement to provide Canopy with extraction and purification services. This was a big coup given Canopy's size and industry-leading cash position thanks to its partnership with alcoholic beverage giant Constellation Brands.” data-reactid=”28″>As background: Neptune Wellness stock has been in a general uptrend since the company threw its hat into the cannabis ring in 2017. Investor enthusiasm was stoked in June 2018 when Neptune announced that it had entered a multiyear agreement to provide Canopy with extraction and purification services. This was a big coup given Canopy’s size and industry-leading cash position thanks to its partnership with alcoholic beverage giant Constellation Brands.

Turning to major milestones in 2019, each of which propelled Neptune’s stock upward, as the chart below shows):

Early January: Neptune received its license to process cannabis from Health Canada.
Late March: The company began commercial production and shipping of cannabis extracts from its licensed facility in Quebec.
Early May: Neptune announced it was acquiring North Carolina-based hemp processor SugarLeaf Labs as part of its strategy to enter the U.S. hemp-derived cannabidiol (CBD) market, which opened on Jan. 1.
June 7: The company announced that it had signed a three-year deal with Tilray (NASDAQ: TLRY) to provide extraction and related services for at least 120,000 kilograms total of cannabis and hemp biomass.
June 12: Neptune announced not only its largest extraction deal ever but also what it touts as the “largest cannabis extraction deal publicly announced to date in Canada”: a three-year agreement with The Green Organic Dutchman (NASDAQOTH: TGODF) for processing a minimum of 230,000 kilos of cannabis and hemp biomass. Services will include extraction, formulation of finished products, and packaging.

Data by YCharts.

Now what

Neptune Wellness should see demand for its services swell significantly as it rides the second wave of cannabis legalization in Canada. Our neighbor to the north is expected to give the green light to marijuana derivatives — including edibles, beverages, concentrates, and topicals — in October. All the major players are eager to enter these markets, since derivatives should sport much higher profit margins than dried flower.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Beth McKenna owns shares of Canopy Growth. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.” data-reactid=”60″>Beth McKenna owns shares of Canopy Growth. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.