Looking for Pot Stocks? Read This
I’m sure you’ve been witnessing the roller-coaster ride that has been going on in the U.S. stock market. The outbreak of COVID-19 led to a massive sell-off across industries. But before you knew it, the market started to bounce back.
And this could be an opportunity for pot stock investors.
You see, over the past few years, pot stocks have been getting a lot of investor attention. Because the market is still at a nascent stage and expanding, many cannabis companies have been growing at a rapid pace.
Investors want a piece of the pie, but not everyone has taken action. One of the main concerns that made people think twice about getting into pot stocks was that valuations seemed a bit high.
Now with the recent market downturn, the share prices of pot companies have come down quite a bit. And even though there has been some recovery, many pot stocks are still offering discounts.
Case in point: Canopy Growth Corp (NYSE:CGC) is one of the biggest players in the cannabis industry. The company offers a wide range of brands and products in dried flower, oil, and softgel capsule forms. It’s also developing edibles and beverages.
CGC is also in the cannabis medical device business through its subsidiary Storz & Bickel GmbH & Co. KG.
Notably, Canopy Growth is one of the few pot stocks listed on the New York Stock Exchange (the company also trades on the Toronto Stock Exchange). In an era when many pot stocks are still trading over the counter in the U.S., having its shares listed on a major American stock exchange can bring the company a lot more liquidity and exposure.
Canopy Growth Corp Runs a Solid Business
One of the major catalysts for the pot industry was Canada’s nationwide legalization. On October 17, 2018, Canada legalized recreational marijuana, making it the first G7 country to do so.
Canopy Growth was right there to capitalize on that new market. According to the company’s investor presentation, it has an estimated 22% share in the retail Canadian recreational cannabis market, making it the leader of the industry. (Source: “Investor Presentation March 2020,” Canopy Growth Corp, last accessed June 18, 2020.)
Notably, the company has a 23% market share in Ontario (Canada’s most populous province), a 21% market share in Nova Scotia, a 35% market share in Prince Edward Island, and a whopping 38% market share in Alberta.
The company also serves the medical cannabis market, and has grown its number of patients to over 76,700 in Canada. (Source: “Canopy Growth Reports Third Quarter Fiscal 2020 Financial Results,” Canopy Growth Corp, February 14, 2020.)
Thanks to the changing regulatory environment, Canopy Growth now has a much more diverse revenue mix than before.
Two years ago, the company generated all its net revenue from the Canadian medical marijuana market. In the company’s most recent reporting quarter, Canadian medical pot represented just 13.8% of CGC’s net revenue. (Source: “Canopy Growth Reports Full Year and 4th Quarter Fiscal 2020 Financial Results; Provides Strategic Review Update,” Canopy Growth Corp, May 29, 2020.)
The company earned 46.1% of its net revenue from the Canadian recreational pot business, 19.2% from its international medical pot business, and 27.5% from its other sources.
And now, with more product forms, the cannabis industry could attract new recreational marijuana customers.
You see, in the U.S., dried flower used to be the go-to choice for consumers, accounting for 65% of the industry’s total sales in 2015. Fast forward to 2019 and dried flower’s market share dropped to 42%, with the remaining 58% of cannabis sales coming from edibles, vapes, pre-rolls, and other form factors. (Source: “Investor Presentation March 2020,” Canopy Growth Corp, op. cit.)
Meanwhile, survey results suggest that more than one in four people in Canada intend to use cannabis beverages.
With these trends, Canopy Growth is well positioned to keep growing its business. The best part is, as one of the most established players in the legal cannabis industry, the company is already churning out some serious numbers.
In Canopy Growth Corp’s full-year fiscal 2020, which ended March 31, 2020, the company generated CA$398.8 million of net revenue. The amount represented a whopping 76% increase from the prior fiscal year. (Source: Canopy Growth Corp, May 29, 2020, op. cit.)
Previously, management expected Canopy Growth to start generating positive quarterly adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of fiscal 2022, and positive net income within fiscal 2023 to 2025. But due to the uncertainties brought by the COVID-19 pandemic, the company is withdrawing that guidance.
Canopy Growth Corp (NYSE:CGC) Stock Chart
Chart courtesy of StockCharts.com
As the above chart shows, though the pot industry faces a lot of uncertainty, Canopy Growth stock has begun to climb out of the doldrums.
Right now, the stock is still cheaper than before, and if the company continues to deliver impressive growth numbers, I wouldn’t be surprised to see Canopy Growth Corp gaining more investor appeal.