Our Canopy Growth Stock Prediction In 2019 (Buy or Sell?)
Many indicators reveal when a fledgling, disruptive industry has finally achieved big league status. When it comes to marijuana, I point to the 180-degree turn of John Boehner.
Former U.S. House Speaker Boehner left Congress in 2015. In recent months, he has become a cheerleader for the legalization and commercialization of pot, a substance that he once demonized.
Boehner, age 69, served nearly five years as speaker. A conservative Republican from Ohio, he isn’t exactly a hippie. The perpetually suntanned Boehner is famous for chain-smoking Camel Ultra Lights, avidly playing golf, and in the after-hours swirling Merlot wine. The press has often referred to him as the Dean Martin of DC.
In 2011, Boehner told a constituent he was “unalterably opposed” to legalization. But in 2018, he joined the board of advisers of Acreage Holdings (OTC: ACRZF), a small cannabis corporation based in New York City. These days, Boehner frequently holds forth at conferences on the wisdom of investing in cannabis.
Yep, Mary Jane has gone mainstream.
According to Ameri Research, the global legal marijuana market generated spending of $14.3 billion in 2016 and is forecast to post a compound annual growth rate of 21.1% between 2017 and 2024, culminating in 2024 revenue of $63.5 billion.
So what’s an attractive pot stock to buy in 2019? Right now, the largest publicly traded marijuana company based on market valuation is Canopy Growth (NYSE: CGC, TSX: WEED), which boasts a market cap of $9.5 billion.
Canopy Growth generates a lot of news headlines. Another sign of an industry going mainstream is when huge conglomerates start investing in the smaller players; Canopy recently checked that box when a global beverage purveyor upped its stake in the firm.
Does Canopy Growth deserve your hard-earned investment dollars? Or is the marijuana industry mostly a magnet for speculators and grifters? Below, I provide answers.
What Is Canopy Growth?
Based in Smith Falls, Canada, Canopy Growth grows and sells medical cannabis in Canada and around the world. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps. The company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names.
Founded in 2014, Canopy Growth by 2016 was Canada’s first cannabis “unicorn” with a $1 billion dollar valuation. The company went on to become the first federally regulated, publicly traded cannabis producer in North America.
In January 2018, the company went public on the Toronto Stock Exchange (TSX) under the ticker WEED, then in the following May began trading on the New York Stock Exchange (NYSE) as CGC.
How Has Canopy Growth Stock Performed?
What Is Canopy Growth Stock History?
Over the past 12 months, CGC has gained 8.9% compared to a loss of 9.1% for the S&P 500 (see chart).
How Has Canopy Growth Performed In 2017/2018?
Since Canopy Growth started trading on the NYSE on May 24, 2018, CGC has lost 11% compared to loss of 7.9% for the S&P 500.
Who Are Canopy Growth Rivals?
Aurora Cannabis (NYSE: ACB)
Based in Edmonton, Canada, Aurora Cannabis produces and distributes a wide variety of medical marijuana products.
The company’s products consist of dried cannabis and cannabis oil; CanniMed vegan capsules; and hemp products, The company also sells vaporizers, vaporizer accessories, and herb mills.
With a market cap of $5.2 billion, Aurora Cannabis also operates CanvasRX, a network of cannabis counseling and outreach centers. The company operates in 22 countries and holds partnership agreements with several drug retail chains for the distribution, sale, and marketing of medical cannabis products.
GW Pharmaceuticals (NSDQ: GWPH)
GW Pharmaceuticals discovers, develops, and markets cannabinoid prescription medicines. With a market valuation of $3.5 billion, GW Pharmaceuticals’ primary product is Sativex, an oromucosal spray for the treatment of multiple sclerosis, cancer pain and neuropathic pain.
GW Pharmaceuticals also offers Epidiolex, which treats rare and resistant forms of pediatric epilepsy, and has other drugs in the developmental pipeline.
22nd Century Group (NYSE: XXII)
With a market cap of $343.3 million, this biotech focuses on genetic engineering and plant breeding and is developing a new strain of hemp with zero THC, the main psychoactive compound found in cannabis.
22nd Century Group also is creating genetically engineered tobacco plants with 97% less nicotine than conventional strains, as well as a strain high in nicotine that allows for the lowest tar-to-nicotine ratio in the cigarette industry. The low-nicotine variety has proven effective in helping smokers kick the habit.
Will Canopy Growth Go Up In 2019 (Should You Buy)?
Canopy Growth garnered considerable media attention in August 2018, when beverage giant Constellation Brands (NYSE: STZ) increased its existing stake in CGC.
Constellation paid $3.8 billion to boost its ownership of CGC to 38%, to help fuel Canopy’s development of new products that serve the global medical and recreational marijuana industry. The August investment marked the third time since October 2017 that Constellation had bought a stake in Canopy Growth.
Constellation brings significant financial wherewithal and a widespread sales channel to the table. Constellation produces, imports, and markets beer, wine, and distilled spirits in the U.S., Canada, Mexico, New Zealand, and Italy.
With a market cap of $31.6 billion, Constellation’s portfolio of famous brands includes Corona, Clos du Bois, SVEDKA Vodka, Black Velvet Canadian Whisky, and many others. Based in Victor, New York, Constellation provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies.
Canopy Growth also benefits from its location in the Great White North. Canada is the second country, after Uruguay, to legalize possession and use of recreational cannabis for all adults. Medical marijuana has been legal in Canada since 2001.
In this video, Canopy CEO Bruce Linton discusses his company’s growth prospects in 2019, in the wake of Canada’s legalization of recreational marijuana:
Analysts expect demand for marijuana to surge in Canada, creating an acute shortage. Scarcity of weed should be manna for Canopy Growth.
Will Canopy Growth Go Down In 2019 (Should You Sell)?
Thousands of thinly capitalized startup companies are trying to catch the legalization wave, but most are on the road to failure. Because marijuana is still illegal on the federal level in the U.S., marijuana companies in America have limited access to even basic banking services, which makes it difficult to run a public company.
During the latter part of 2018 and continuing into 2019, the broader stock market has wildly gyrated. Sharp sell-offs have been particularly hard on marijuana stocks, which can spike up or down on mere rumors.
The exploding pot stock sector is poised for a brutal shakeout, as investor euphoria wears off and Wall Street comes to its senses about many small marijuana companies that have been bid to ridiculous heights on hype.
Meanwhile, Canopy Growth’s operating results have been less than reassuring.
In November 2018, the company reported a greater loss and missed estimates on revenue for the second quarter of its fiscal 2019.
Canopy’s total revenues came in at CAD23.3 million, up 33% compared to the same period a year ago and in line with management’s guidance. However, the average analyst consensus estimate was for revenue of CAD60 million.
The company reported a net loss of CAD330.6 million or CAD1.52 per share compared to a loss of CAD1.6 million or CAD0.01 per share last year.
Overall Canopy Growth Forecast And Prediction For 2019
I’m usually skeptical when analysts dismiss shaky operating results and advise patience as a growth company tries to gain its footing. But in Canopy Growth’s case, taking the long view is warranted.
Constellation Brands is a Fortune 500 company and its investment in Canopy is one of the best assurances for investors that Canopy faces a future of outsized growth.
Constellation Brands’ sales and marketing infrastructure is entrenched and global — and Canopy Growth can tap it. I wouldn’t be surprised to see Constellation eventually acquire all of Canopy, which would prove an immediate boon for CGC shareholders.
With the help of Constellation, Canopy Growth is expanding production capacity, developing new products, penetrating overseas markets, and eyeing the acquisition of kindred rivals. Canopy’s Tweed marijuana brand already is one of the most recognized on the market.
As senior citizens and conservative lawmakers start embracing what used to be called the “devil’s weed,” you know it’s time to add a pot stock to your portfolio.
Canopy Growth stands in stark contrast to the slew of risky marijuana penny stocks that are destined to disappoint investors. The time to invest in Canopy Growth is now, as it stands on the cusp of integrating into the traditional consumer sector. The company’s marijuana products stand ready to muscle their way onto your grocer’s shelf.
John Persinos is the managing editor of Investing Daily.