Pot stocks started in the red today but soon hit the green, led by gains from Canopy Growth Corporation (TSX:WEED) (NYSE:CGC). The biggest pot company in the world brought the sector up, which is good news for investors across the space.
Rich has already talked about Aurora Cannabis (TSX:ACB) (NYSE:ACB) and its plans for 2020. As big as Aurora is, Canopy is the industry leader, so it’s a stock worth following. So, where does Canopy stand?
“These guys are currently up 8%, and they’re bringing the cannabis sector up,” says Rich. “They’re LeBron James, they’re the biggest thing in the cannabis space. They may not have the best product, but they have the most money.”
Canopy Growth in 2020
According to data from S&P Global Market Intelligence, shares of Canopy Growth declined 21.5% last year. While that’s not a terrible performance, the S&P 500 grew 31.5% during that. That means Canopy stock underperformed the market by 53% in 2019.
For 2020, WEED is up 13%. Is this a sign that the worst is over, and that Canopy has a bright year ahead?
Starting tomorrow, the former CFO for Constellation Brands (NYSE:STZ) will take over as Canopy’s new CEO. The company is expected to release its next fiscal report in February, and after that, revenue from Cannabis 2.0 should begin boosting Canopy’s margins.
But that doesn’t mean the company will be posting revenue, nor does it indicate WEED will be in the green.
According to the Motley Fool, Wall Street expects Canopy Growth’s revenue to increase by 25% year-over-year. But it also predicts its loss-per-share will widen by 26.3%. Essentially, investors can expect things to get worse before they get better.
Still, WEED shares are in the green today, which Rich says is an early indication of long-term success.
“I think Canopy’s been beat up in the past and now they’re going back up,” he says. “They’ve got more intellectual properties than anyone else in the sector. They’re going to be fine, and they’re showing everyone they have a chance to be great. That’s why the stock has been going up.”
Long-Term Potential for Canopy Growth?
Despite reporting $374.6 million in net losses for its last quarter, Canopy stock has not been in free-fall like some of its peers. While some analysts believe that’s because investors have faith in Canopy-backer Constellation Brands, others believe it’s thanks to the company’s incredible portfolio.
Just before its fiscal report, Canopy Growth announced a joint venture with Drake. The JV will be known as the More Life Growth Company and will take ownership of a licensed production facility in Scarborough, Ontario. There, it will focus on the cultivation, processing, and sale of cannabis.
There’s no doubt that, with one of the biggest superstars in music backing it, More Life has a chance to do wonders for Canopy’s business. Despite its losses, Canopy still remains positioned like no other cannabis stock.
“Most people in the cannabis industry agree that eventually Canopy will get it right,” explains Rich. “I wouldn’t advise anybody to chase them right now, but I’m not worried about them either.”
Whether it happens in 2020, 2021, or later, it’s likely that Canopy Growth will eventually grow. For now, though, a slight upturn in price represents an exit opportunity for some investors and a glimmer of hope for others.
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