Canopy Growth Corp: The Only Buy-&-Hold Pot Stock You Need?

canopy growth stockCanopy Growth Stock the “Tesla” of Pot Stocks

Marijuana stock investors cheered the election win by President-elect Joe Biden, with the view that the Democrats are more friendly to the cannabis sector. The landscape for recreational cannabis also became more optimistic due to more states voting to legalize the drug.

The ETFMG Alternative Harvest ETF (NYSE:MJ) rallied 25% over the last month, triggered by the Biden win.

Chart courtesy of StockCharts.com

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The biggest operator in the ETFMG Alternative Harvest ETF is Canada-based Canopy Growth Corp (NASDAQ:CGC), which has a market cap of about $10.0 billion. That’s three times bigger than the next-biggest legal cannabis company.

The vertically integrated grower and seller of cannabis and hemp products has an extremely sound balance sheet.

While Canada is Canopy Growth Corp’s focus market at this time, the company operates in 12 countries, including the U.S.

Canopy Growth stock makes sense for those who want to hold the biggest player in the legal marijuana sector and simply leave it in their portfolio.

Canopy Growth Breaks Out

CGC stock traded in a sideways channel from October 2019 between $16.00 and $25.00, prior to the market sell-off in March 2020. The stock fell below $10.00 in March, prior to nearly tripling to its current level.

The break at the key channel resistance at $20.00 was a major development for Canopy Growth stock.

CGC stock traded at a 52-week high of $27.70 on November 24, up 47% over the previous month but still well below its euphoric high of $59.25 in October 2018 following the legalization of recreational pot in Canada.

Chart courtesy of StockCharts.com

The key for CGC stock is whether its price can hold. The downside risk is $20.00, which has become the new major support level.

Impressive Revenue Growth Supports Bull Thesis for CGC Stock

Canopy Growth Corp reports a fiscal year ending in March. The revenue picture has been spectacular over the last four fiscal years as the company accelerated its revenue base.

Fiscal Year Revenue (Millions) Growth
2016 CA$12.7 N/A
2017 CA$39.9 214.2%
2018 CA$78.0 95.4%
2019 CA$226.1 190.4%
2020 CA$398.8 76.2%

(Source: “Canopy Growth Corp.” MarketWatch, last accessed December 4, 2020.)

Canopy Growth, however, is still years away from profitability, as the company works on controlling its cost side while expanding.

Fiscal Year GAAP Diluted EPS  Growth
2016 -CA$0.05 N/A
2017 -CA$0.14 -180.0%
2018 -CA$0.40 -183.4%
2019 -CA$2.76 -595.0%
2020 -CA$3.80 -37.7%

(Source: Ibid.)

In the meantime, as mentioned earlier, Canopy Growth’s balance sheet is sound, which will provide the company with financial flexibility over the next few years as the industry grows.

At the end of March, Canopy Growth Corp had approximately CA$569.1 million in long-term debt, along with CA$2.0 billion in cash. (Source: Ibid.)

Analyst Take

Investors can consider Canopy Growth stock the “Tesla” of the pot sector. Being the biggest player has major benefits of scale and distribution.

For those who want a long-term cannabis stock with above-average capital appreciation, CGC stock is worth a look.