CGC Stock Forecast: Future Looks Bright, Despite Reporting Poor Results

CGC stock forecast 2019
iStock.com/Olga Volkovaia

CGC Stock Forecast for 2019

The marijuana industry is not seeing a boost in share prices post-legalization. To be fair, that’s not unexpected. The massive run during August helped spur huge gains and worked to offset what otherwise would have been a bullish run in October.

With all that said and the market seemingly in the dumps, what does it mean for the CGC stock forecast for 2019, especially considering the weak Q2 2019 earnings report?

Canopy Growth Corp (NYSE:CGC) has long been one of my favorite marijuana stock picks.

Among the largest marijuana companies in the world, the CGC stock forecast is still very bright, even if the near term looks dour.

Advertisement

First, you have the company’s willingness to invest in global expansion. That expansion has taken it to the German market and South America, spreading its tendrils to touch many lucrative regions that are going to play big parts in the future of pot.

And then you have the strong supply agreement signed across Canada, another big factor in the CGC stock forecast for 2019.

Couple those valuable deals—all but guaranteeing that we’ll see steady sales of marijuana to flush government buyers—with the company’s ever-expanding supply capacity, and you have the best recipe for long-term marijuana success.

Now on to the bad news.

First, you have a market that is in decline—at least for now.

A marijuana downturn has hit hard and fast, seeing CGC stock lose over 35% in the past month.

Chart courtesy of StockCharts.com

While the legalization of recreational marijuana in Canada will undoubtedly pay dividends for the industry in the future, the immediate response to the enacting of the law has not been positive for pot stocks.

These dips are being seen across the cannabis stock market, and speak more to investors’ trepidation that pot stocks are overvalued rather than anything that Canopy Growth has done wrong.

We’ve seen these falls happen before, and they always give way to massive explosions in growth sooner or later.

The problem is, of course, that with nothing driving the marijuana market toward growth (like a big investment or legalization in a new market), this pullback may last longer than others.

In this situation, earnings reports become all the more critical for their ability to generate growth.

And that brings us to the biggest knock against Canopy—the Q2 earnings report.

CGC stock saw a loss of CA$330.6 million in the latest quarter, a worse performance than analysts expected. The Canadian marijuana legalization naturally demanded an increase in spending, but the numbers were underwhelming all the same.

Revenue,  on the flip side, jumped to CA$23.3 million from CA$17.6 million a year ago. Compared to the previous quarter, however, it fell from CA$25.9. (Source: “Canopy Growth Corporation Reports Second Quarter Fiscal 2019 Financial Results,” Canopy Growth Corporation, November 14, 2018.)

The company attributed the drop in quarterly revenues to “hiccups” in shipping to Germany and distractions resulting from the approaching marijuana legalization, said CEO Bruce Linton.

“I would attribute half of the decline to not-normal-course Germany, and a little bit of a pause with the medical people … It is the first time in our history that I’m aware of that we actually had a slowdown, but it was more of a distraction than a pattern,” Linton told analysts on a conference call Wednesday. (Source: “Canopy Growth reports Q2 loss on ramped up spending ahead of pot legalization,” CTV News, November 14, 2018.)

The numbers here are not great, no matter which way you slice it.

But the legal marijuana industry, being as young as it is, is expected to go through high-cost quarters in order to ramp up production. In fact, you could argue that more needs to be spent on increasing capacity considering the pot shortages we’re seeing across Canada.

In spite of these not-so-great numbers, Canopy Growth has so much else going for it that the its stock forecast is still bright, with the next quarterly report giving it ample opportunity to right the ship.

CGC vs. ACB Stock Earnings

With the CGC stock forecast for 2019 still strong, does the relatively weak Q2 2019 earnings report mean that investors should be looking elsewhere? Maybe Aurora Cannabis Inc (NYSE:ACB), for instance?

I would caution investors to hold off on jumping ship just yet.

Undoubtedly, in the CGC vs. ACB stock earnings battle—at least in this most recent quarter—ACB came out ahead.

It saw revenue jump to $29.7 million, representing an increase of 260% year-over-year. The company also saw profit skyrocket by 2,826% to CA$104.2 million. (Source: “Aurora Cannabis’ earnings surge by 2,800% after it produces 11,000 pounds of pot in 3 months,CNBC, November 12, 2018.)

These are far stronger results compared to Canopy Growth, certainly.

But ACB has been unable to capitalize on these strengths throughout the year, as evidenced by Canopy’s growth of about 50% year-to-date, while ACB has fallen about 12% in the same time.

Chart courtesy of StockCharts.com

Aurora has made numerous acquisitions in an attempt to catch up with Canopy and otherwise challenge it for dominance in the market, but it has so far only lagged behind.

Canopy simply has stronger foundations in place to encourage long-term growth—poor quarter or not.

While ACB could very well see strong gains in 2019, I still see the CGC stock forecast being among the best in the marijuana industry—and likely better than Aurora.

Analyst Take

There is a lot to like about the CGC stock forecast for 2019.

From the numerous international CGC acquisitions to its strong foundations in Canada, CGC is poised for another strong year.

For investors asking “Should I consider CGC now?” I’d caution that they wait, since the marijuana stock market is going to be in a downturn for a while yet.

But investing at the low point, whether that’s now or a few weeks from now, will likely pay off with huge gains in 2019.