Canopy Growth Corp (NASDAQ:CGC) has been good to investors. How good? Since I began writing about Canopy Growth stock in late 2016, it has surged by more than 500%!
For a long time, CGC stock was considered by many to be the top Canadian marijuana stock.
But now that things are beginning to slow in the market and analysts are less certain that federal U.S. marijuana legalization is going to be passed in 2021, is Canopy Growth stock still a worthwhile investment?
Chart courtesy of StockCharts.com
The short answer is yes, with the caveat that, if you’re looking for exponential gains (and therefore higher volatility), it might be better to look elsewhere.
In order to understand CGC stock’s current market position, you have to understand how it came to dominate the sector in its early days.
Back when Canopy Growth stock first appeared, the company was headed by Bruce Linton, who later became the de facto face of the legal marijuana industry.
With a growth-oriented business plan, Canopy Growth Corp made some major investments early on to boost its capacity. That helped grow the company, but what really drove its share-price growth was the company’s eventual partnership with Constellation Brands, Inc. (NYSE:STZ).
Constellation Brands, an alcohol maker, poured lots of capital into CGC stock and let the still-nascent pot company take advantage of its many strategic insights when it comes to marketing and selling vice goods.
But perhaps most importantly, the two companies were bound to work together on cannabis-infused beverages.
With the massive influx of cash and insights from Constellation Brands, the already dominant Canopy Growth stock surged into the stratosphere and took its place at the top of the industry by market cap for the next several years.
Challengers came and went, each vying for the top spot, but despite a flurry of acquisitions, capacity expansions, and entries into the global pot market, no Canadian company could unseat Canopy Growth Corp.
Then the legal pot market began to slow. The luster of Canadian marijuana legalization wore off and the hype began to die down. Coupled with the lackluster sales early on in the Canadian pot market (relative to the sky-high valuations of the top marijuana companies), pot stocks began to decline.
What followed was a couple years of boom and bust cycles, in which CGC stock would climb high, only to have a correction set in. The process repeated several times over the past three years.
Chart courtesy of StockCharts.com
In that period, Linton was let go from his position as CEO of Canopy Growth Corp, at the direction of the Constellation Brands board, who wanted to reorient Canopy Growth toward making profits now, rather than trying to expand the company’s reach into the global marijuana market.
At the time, I believed this to be an error. Heck, I still believe this was an error. Linton was a charismatic and well-respected leader who understood that the marijuana market had so much to offer to investors patient enough to mire through legislative setbacks and other hurdles.
The Future of Canopy Growth Corp
Time will tell whether Constellation Brands and its shareholders made the right decision when they ousted Linton, but it means the days of Canopy Growth Corp swinging for the fences by aggressively capitalizing on global marijuana markets and acquiring smaller pot companies are likely gone.
What it also means is that Canopy Growth is now, more than ever, focused on turning out a bottom line that’s in the black.
And one of the best ways for the company to achieve that is through its primary competitive advantage: Canopy Growth Corp is the leader of the cannabis and cannabidiol (CBD)-infused beverage space.
The company’s CBD beverages have been available in Canada for years now, and Canopy Growth has been making forays into the U.S. market, even partnering with lifestyle icon Martha Stewart. (Source: “Top Marijuana Stock Times New CBD Drink Launch With Astrological Event,” Investor’s Business Daily, March 3, 2021.)
So of all the Canadian pot stocks on the market today, Canopy Growth stock is among the few that have any business operations in the U.S. (federal prohibition making it difficult to get a foothold in the market).
What’s more, Canopy Growth Corp has the option to acquire Acreage Holdings Inc (OTCMKTS:ACRHF) when the U.S. federally legalizes pot, giving CGC stock a huge head start on fellow Canadian marijuana stocks in terms of having established business operations in the U.S.
That has Canopy Growth stock well positioned for the future. But I believe that, due to the company’s more conservative nature, now that it has lost Linton’s ambition, I imagine that Canopy Growth Corp will take a slow and steady approach to the U.S. market—even in the early days of federal U.S. legalization, which would be the most opportune time to make big investments and acquisitions.
With so many exciting U.S. pot stocks cropping up, I’d say that, as it stands, there are definitely pot stocks with more upside than CGC stock.
But if you want a marijuana stock that could pretty easily see a 30%-or-so gain in the next few months—and a massive surge when federal U.S. marijuana legalization eventually arrives—Canopy Growth stock could be right for you.
All things considered, we’re probably not going to see another 500% gain from CGC stock anytime soon (unless the U.S. market opens and Canopy Growth Corp becomes hyper-aggressive).
But that doesn’t mean the company is without value; far from it.
From my vantage point, Canopy Growth stock could easily surge by another 30% by year’s end—perhaps even higher. And, as I mentioned earlier, the moment U.S. marijuana legalization arrives, all pot stocks could skyrocket. I anticipate that, at least in the early days of the hype, Canopy Growth stock will be among the top beneficiaries.