If You Want to Profit From Weed Stocks, Read This
Some people have made big money from marijuana stocks, but others have taken heavy losses.
If you need a reminder of just how volatile these stocks can be, take a look at their performance in the second half of 2018.
Many companies in the cannabis industry saw their shares rally astronomically from August to mid-October. But as the market-wide sell-off started, weed stocks took some of the biggest hits. The North American Marijuana Index, which tracks 46 leading cannabis stocks in the U.S. and Canada, plunged 33% in less than three months.
This massive tumble serves as a reminder of the risks associated with marijuana stocks.
Because a lot of cannabis companies are just starting out and have yet to establish solid financials, their share price performance relies substantially on what market participants think of them. If market sentiment turns bearish—like what happened in the fourth quarter of 2018—these companies’ stock prices will likely be in the doldrums.
That’s why, given all the uncertainties ahead, risk-averse investors might want to go with the more established names in the business, such as Canopy Growth Corp (NYSE:CGC).
Canopy Growth Corp
Headquartered in Smiths Falls, Ontario, Canopy Growth Corp is the first North American cannabis company to be publicly traded. Its shares are listed on the Toronto Stock Exchange (TSE) under the symbol “WEED,” and on the New York Stock Exchange (NYSE) under the symbol “CGC.”
That is, while Canopy Growth is a Canadian company, it’s very convenient for U.S. investors to purchase its shares.
Of course, CGC stock also took a beating in the latest stock market crash. But I believe that the company could still be an opportunity for investors in 2019.
You see, while there are plenty of marijuana companies claiming to be the next big contender in the industry, Canopy Growth has already carved out a solid share of the market. It’s already selling thousands of kilograms of cannabis every quarter, bringing in tens of millions of dollars of revenue.
The best part is that, despite being one of the most established players in the marijuana business, Canopy Growth Corp is still growing at a rapid pace.
Running a Growing Business
Here are some interesting numbers.
In the second quarter of CGC’s fiscal-year 2019, which ended September 30, 2018, the company generated $23.3 million of revenue, representing a 33% increase year-over-year. (Source: “Canopy Growth Corporation Reports Second Quarter Fiscal 2019 Financial Results,” Canopy Growth Corp, November 14, 2018.)
To put it simply, Canopy Growth Corp was able to sell more weed at a higher price. During the quarter, the company sold 2,197 kilograms and kilogram-equivalents of marijuana, up nine percent year-over-year.
The average selling price reached $9.87 per gram for the quarter, marking a 24% increase from $7.99 per gram in the year-ago period.
The company also expanded its user base. It had 84,400 active registered patients in the September quarter, up 34% from a year ago.
What to Expect in 2019
Looking ahead, the company has quite a few things going for it.
Canopy Growth now operates 10 cannabis production sites, with over 4.3 million square feet of production capacity. Continued production and sales growth is something that investors can expect from the company in 2019.
Canada’s recent legalization of recreational marijuana for adult use could give the cannabis industry a big boost, and Canopy Growth stands to profit.
The company’s products have obtained more than 30% listing market share in multi-store physical retail store networks in Canada. And thanks to the plan to bring in more value-added products—like softgels and pre-rolled joints—to the lineup, CGC’s market share could get even bigger.
Don’t forget, one of the major catalysts behind pot stocks’ rally last summer was the announcement that wine and beer maker Constellation Brands, Inc. (NYSE:STZ) would take a sizable stake in Canopy Growth.
According to Canopy Growth, Constellation Brands’ $4.0-billion investment in CGC, which was completed later in 2018, would provide Canopy Growth with “significant funding needed to build scale in the more than 30 countries currently pursuing federally permissible medical cannabis programs, while establishing the foundation needed to supply new recreational adult-use markets as cannabis becomes legal in markets around the world.” (Source: “Constellation Brands’ $5 Billion CAD ($4 billion in USD) Investment in Canopy Growth Closes Following Shareholder and Canadian Government Approval,” Canopy Growth Corp, November 1, 2018.)
And when the Agriculture Improvement Act of 2018—which contained the legalization of hemp—was signed into law in the U.S. in December, Canopy Growth said that the company “is well-positioned to enter the US market quickly.” (Source: “Canopy Growth Comments on The Farm Bill,” Canopy Growth Corp, December 20, 2018.)
In other words, this cannabis company still has plenty of momentum left.
Ultimately, the performance of marijuana stocks in 2019 will depend on investor sentiment toward the industry, as well as on the overall market environment. If the U.S. stock market has a major sell-off in 2019, it will be difficult for pot stocks—including CGC—to perform well.
But if the stock market decides to warm up to the marijuana industry this year, Canopy Growth’s solid fundamentals and growth potential could make it one of the biggest gainers in the legal cannabis business.