Canopy Growth Stock’s Prospects in 2022
History may not always repeat itself, but it does at the very least rhyme. Once again, marijuana stocks have begun to rally after being incorrectly devalued.
One of those marijuana stocks is Canopy Growth Corp (NYSE:CGC), perhaps the pot stock I’ve written about the most. CGC stock was one of the first marijuana stocks I began covering, and the company was always good for a headline-grabbing acquisition or new product announcement (or at least it used to be).
But Canopy Growth stock has fallen on hard times as of late.
Canopy Growth Corp lost a lot of its ambition after it fired its founder and co-CEO, Bruce Linton, in 2019. The company was also unable to parlay Canadian pot legalization into prolonged business growth, as a variety of factors served to dampen enthusiasm in the sector in Canada post-legalization.
Moreover, Canopy Growth Corp has failed to live up to investors’ expectations, with the company’s novel product lines of cannabis-infused beverages and the like being unable to push the needle.
So that’s the bad news, but what about the good news?
In the short term, there’s a lot of it. For one, CGC stock recently saw an impressive 30% gain in just five days (November 8 to 12).
Chart courtesy of StockCharts.com
What motivated those gains?
Canopy Growth stock had fallen below $12.00 per share at one point (its lowest level since early 2020), following Canopy Growth Corp’s announcement that its financial growth would be slower than expected in the first half of 2022.
“Our gross margins have suffered from lower than planned volume, continued price compression in value and inventory write-downs resulting from our underperformance in the Canadian market,” said the company. (Source: “Canopy Growth Shares Fizzle on Canadian Cannabis Market Woes,” MarketWatch, November 5, 2021.)
Canopy Growth Corp cited the growing competition in the Canadian marijuana market as having a negative impact on its financial growth.
But, as noted above, something funny happened following that announcement and subsequent market pullback. CGC stock began to rise—not in a gentle, inching fashion, but in a supercharged one.
What motivated such a spike? Easy: investors are playing the long game.
While Canopy Growth stock might face trouble in the near term—having lost a good bit of its luster in the eyes of analysts and investors alike (myself included)—there remains immense value in the leading Canadian marijuana company.
First, Canopy Growth Corp continues to have massive production capacity. As the Canadian black market for marijuana continues to shrink and more people get used to buying pot at licensed stores, it stands to reason that the company will be a major recipient of financial gains. This, in turn, will boost investor sentiment, leading CGC stock to increase in value.
Canopy Growth stock is a long-term, marginal play, whereby investment gains will come in slowly but steadily.
But, as we’ve seen recently, CGC stock has the capacity to rise fast, partly because it has been trading very low. So even this long-term and slow-moving opportunity is enough to generate big swings upward.
And then you have the bigger plays that Canopy Growth Corp has lined up, namely its presence in the German market.
Germany looks like it’s on the verge of legalizing marijuana. It could become the second developed nation to follow Canada’s path and the first truly major economy to make the drug legal.
Canopy Growth Corp already has a business presence in Germany. And while federal U.S. laws prevent the company from expanding in the U.S., the company might be able to do so in Germany.
Canopy Growth could make aggressive moves to carve out a large space in the German market, even acquiring small pot companies and leveraging those acquisitions to increase its revenue.
All this to say there are many business opportunities for Canopy Growth Corp. And with Canopy Growth stock currently trading at a depressed price, it’s a volatile but potentially lucrative investment opportunity at the moment.
While I do believe CGC stock isn’t as attractive as it once was, there’s still a lot to like about it. What’s more, the market’s reactions to Canopy Growth Corp’s weaker performances over the past few years have been sharp overcorrections.
And as we’ve seen countless times in the marijuana stock market, a sharp downward overcorrection is almost always followed by, at some point, an even sharper climb. We saw that in mid-November, and we’re likely to see more of that in the coming year.
While Canopy Growth stock remains volatile and, to a certain extent, unpredictable, there remains a ton of value locked within it.
Therefore, CGC stock could be a powerful addition to an investment portfolio—if you can stomach the volatility.