Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | On September 17, 2019, Shopify Inc. (TSE: SHOP, NYSE: SHOP) announced expansion of its cannabis e-commerce platform to allow U.S. retailers to operate online sales of hemp and hemp-derived cannabinoid (“CBD”) products. The platform with the newly added features will support hemp and CBD businesses for shipping and marketing products across 40 states with tools to develop an online-store website and manage payment processing. Shopify already implemented this service for merchants in Canada last year.
The two main chemical components of cannabis are Tetrahydrocannabinol (“THC”), the psychoactive component, and Cannabidiol (“CBD”), the therapeutic component. There is scientific evidence for CBD treating seizures and different types of chronic pain, but unlike THC, CBD does not induce any psychoactive effects according to the World Health Organization. Hemp or Industrial Hemp is a term used to describe strains of Cannabis that contain very low concentration of THC.
Shopify’s offering follows the U.S. federal legislation enactment of the Farm Bill passed in December 2018, which removed hemp from the Controlled Substances Act, allowing companies to sell hemp as long as it contains less than0.3% THC. Unlike Canada, which federally legalized both THC and CBD, and regulates them in the same way, cannabis products with THC are still federally illegal in the U.S.
This is not Shopify’s first foray into the cannabis industry as it has already started supporting cannabis companies since October 2018 when Canada legalized cannabis recreationally. In Canada, Shopify has been widely used for online cannabis sales by governments, including Ontario and British Columbia, and private companies including Canopy Growth Corp., the largest cannabis company in the world by market capitalization, as well as Aurora Cannabis Inc. and Hexo Corp.
According to BDS Analytics and Arcview Market Research, CBD products for industries including cosmetics, health, food and beverage, skin care, and pharmaceuticals, are expected to reach total sales of US$20 billion in the U.S. by 2024.
On September 9, 2019, in an effort to enhance delivery speed and compete against Amazon’s one- to two-day shipping standards, Shopify announced a US$450 million acquisition of 6 River Systems, a warehouse fulfillment solutions company with 20 facilities across the U.S., Canada, and Europe. The acquisition would provide Shopify with the infrastructure to be able to provide e-commerce businesses with a platform that supports the full sales cycle for businesses including marketing, purchasing, payments, and shipping.
To fund this acquisition, on September 17, 2019, Shopify announced the sale of 2.2million shares for gross proceeds of US$693.7 million. Unfortunately, even though the Company had transparently laid out its strategy and the reasons for the capital raise, the market drove Shopify’s stock price down after it announced the financing.
Shopify’s stock price hit its all-time-high of US$409.61 per share on August 27, 2019 but has since dropped down 20% to US$326.41. Nevertheless, Shopify has outperformed the S&P by 110% so far this year.
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Shopify Inc. (TSE: SHOP, NYSE: SHOP)
- Headquartered in Ottawa, Canada, Shopify is a technology company that has a proprietary e-commerce platform that allows businesses to set up online stores and retail point-of-sale systems.
- Shopify is currently trading at US$326.25 per share with a market capitalization of US$36.9 billion.
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