KeyBanc: Shopify Has Upside Potential With Marijuana Opportunity

When recreational cannabis sales begin in Canada next month, Shopify Inc SHOP could rise on a secondhand high.

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The Rating

KeyBanc Capital Markets analyst Monika Garg maintained an Overweight rating on Shopify with a $182 price target.

The Thesis

British Columbia, Ontario and other provinces — as well as large cannabis producers and suppliers like Canopy Growth Corp CGC and Aurora Cannabis Inc ACBFF — have chosen Shopify to facilitate online and in-store sales, Garg said in a Sunday note. (See her track record here.) 

“Shopify has established a leading position as the platform underlying the sale of legalized cannabis in Canada,” the analyst said. “This could benefit both GMV and revenue, and further benefit its business momentum.”

With Shopify Plus customers paying 0.25-percent take rates on gross merchandise volume, or GMV, plus an additional 0.15 percent if they bypass Shopify’s payment process, the site could realize major profit off a market with estimated annual GMV around $10 billion, according to KeyBanc. 

At the same time, the e-commerce platform has proven itself a preferred channel for major fashion and cosmetic brands, including Fashion Nova, Kylie Cosmetics and LeSportsac, Garg said. Such clients yield “ample growth opportunities” with upside potential, she said. 

“Shopify is becoming the go-to platform for the fastest growing and most successful emerging brands,” the analyst said. “We believe this remains underappreciated by investors.”

KeyBanc identified two years of steady and consistent increases in transaction volumes suggested to be the result of emerging brand growth and expansion in Shopify merchants’ market share.

Price Action

Shopify shares were trading near-flat at the time of publication Monday at $154.82. 

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