Long-Term CGC Stock Forecast: Why Investors Shouldn’t Panic

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Canopy Growth Stock Forecast

It’s been a tough month for the marijuana industry overall, but one of the surprises has been just how hard Canopy Growth Corp (NYSE:CGC) has been hit in November. Despite that hit, however, the CGC stock forecast shows that there’s still a lot of growth potential contained within this stock.

Formerly the marijuana market darling, Canopy Growth stock has been plummeting as of late. Will its fall continue, and what does it all mean for the CGC stock forecast for 2019 and beyond?

In my mind, not a whole lot.

Here’s the thing about Canopy Growth: it’s still a very strong company, with one of the best long-term projections in the entire legal cannabis industry.

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I’ve written literally tens of thousands of words outlining why I think CGC stock will yield strong gains in 2019. Now let’s examine why the stock has been falling in the first place.

The major reason we have been seeing a decline in the Canopy Growth stock price is the overall marijuana stock market downturn.

The correction has hit the cannabis sector hard and fast, wiping away a good chunk of the stock gains made in late August following the $4.0-billion investment in Canopy Growth by Constellation Brands, Inc. (NYSE:STZ). That event sent marijuana stocks across the board skyrocketing by high double-digits in most cases.

I knew that the massive run in the marijuana stock market was going to be inevitably followed by a correction.

While my timing was a little off (I predicted that cannabis stocks would see more of a rush in the lead-up to Canadian legalization, then a tailing-off followed by a correction in late 2018), my predictions were largely spot on.

We’ve seen immense growth followed by a market pullback, part of a push-and-pull effect that has defined the legal marijuana industry since its inception.

Being among the largest marijuana companies—and arguably the most prominent—made Canopy Growth one of the companies most affected by the downturn.

CGC stock is being punished slightly for its visibility, which explains some of its recent poor performance in the stock market. The other major factor is the company’s rather weak second-quarter financial results.

Positives and Negatives of the Canopy Growth Quarterly Report

Second-Quarter Fiscal 2019 Operational and Financial Highlights
Q2 2019 Q2 2018 Percentage Increase
Active registered patients 84,400 63,000 34%
Kilograms and kilogram-equivalents sold 2,197 2,020 9%
Kilograms harvested 15,127 4,167 265%
Inventory & Biological Assets (millions) $171.0 $97.0 76%
Revenue (millions) $23.3 $17.6 33%
Average selling price per gram $9.9 $8.0 24%
Cash and Cash Equivalents (millions) $429.0 $108.0 296%

(Source: “Canopy Growth Corporation Reports Second Quarter Fiscal 2019 Financial Results,” Cision, November 14, 2018.)

As can be seen in the chart above, there was a lot to like about the company’s recent fiscal report. While the report did hurt the company’s stock price, there’s still a lot of good contained within it.

Revenue, kilograms sold, and registered patients all increased. The company saw more sales in Germany, one of the most exciting and lucrative markets that has yet to be fully explored.

So why the negative stock market reaction?

The first problem was that the company fell short of analysts’ expectations. While the results were only slightly off the mark, that was enough to put a damper on the impressive figures.

More importantly, losses in certain categories ramped up significantly in the last quarter.

In terms of adjusted earnings before interest, tax, depreciation, and amortization (EBITDA), there was a loss of $57.7 million in the second quarter, up from a $4.8-million loss in the year-ago second quarter. In the year-to-date period, there was an adjusted EBITDA loss of $80.2 million, a big increase from the $8.7 million loss in the same period a year ago.

Now, financial losses aren’t always a bad thing. After all, companies in the tech sector took heavy losses for years as they focused on growth, and that strategy paid off handsomely for investors.

The same likely goes for Canopy Growth. Yes, those losses are staggering compared to the year prior, but the company is playing a different game now. No longer a young upstart in a nascent industry, Canopy Growth is the industry standard bearer, exploring a variety of options when it comes to engaging with the market.

This exploratory phase by necessity requires investment and expansion, which translates into spending.

And that’s precisely what makes the CGC stock forecast for 2019 so enticing. The company is making all the proper acquisitions—both domestically and internationally—to ensure that it will be a powerhouse for many years to come.

Furthermore, it’s worth noting that Canopy Growth is one of the few pot companies to have seen significant stock value growth in 2018.

The following stock chart shows the Canopy Growth stock performance in 2018 (in black) compared to ACB stock (in blue), APHA stock (in red), and CRON stock (in green).

Chart courtesy of StockCharts.com 

As can be seen in the chart above, Canopy Growth stock has climbed by nearly 40% year-to-date, while so many of its competitors have either seen substantial stock price losses or relatively moderate gains.

The reason for this disparity in outcomes is that Canopy Growth simply has the best fundamentals in the business. Those strong fundamentals are likely to power a strong stock performance in 2019.

Analyst Take

Admittedly, some tough times are ahead for Canopy Growth (and the legal marijuana industry in general). But when it comes to my CGC stock forecast for 2019, there are so many factors going in the company’s favor that it’s hard to see the stock faltering.

As such, my suggestion is to ride out this rough wave and be ready for sunny times ahead.