Canopy Growth Stock Is Primed to Do Serious Damage

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CGC stock - Canopy Growth Stock Is Primed to Do Serious Damage

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I’m certain that five years from now, you’ll regret not owning Canopy Growth (NYSE:CGC) if you haven’t done so already. But seeing as how CGC stock cratered badly since the October market selloff, the naysayers’ voices have higher leverage.

Against its peak-closing price, Canopy stock finds itself down more than 40%. Moreover, shares have failed to make good on a recent rally, which was given a boost by positive midterm-elections results. Since November’s opening price, the Canadian pot firm is down almost double digits.

As a result, I anticipate most investors neutral to the legal-marijuana concept to side with the bears. If you look around, you’ll find several arguments against pot investments, with many applying to CGC stock.

Perhaps the most common and quantifiable argument is valuation. For one thing, the lion’s share of cannabis companies are unprofitable, and CGC is no exception. With operating margins nose-deep in the red — and getting deeper — it’ll take a while before Canopy sees any green, ironically.

But even compared against revenues, the sector is a mess. Proponents for CGC stock love talking about revenue growth because it’s in abundance. However, its equity trades for 98-times sales. Compare that to other “vice stocks,” including Anheuser-Busch (NYSE:BUD), Altria (NYSE:MO), or its partner-in-crime Constellation Brands (NYSE:STZ). These companies have price-to-sales ratios of 2.9, 4.1 and 5.1, respectively.

Another problem factor is sector volatility. Like cryptocurrencies, we’ve seen several names materialize seemingly out of nowhere to astronomical heights. And similar to the blockchain phenomenon, most of those high-flyers came crashing back down to earth. With stability at a premium these days, why bet on Canopy stock?

Finally, the big one: marijuana remains a Schedule I drug despite positive electoral momentum. Canada alone can’t justify the stratospheric rise in CGC stock.

U.S. Will Eventually Open for CGC Stock and All Cannabis Firms

Canopy finds itself in an awkward position. Relatively speaking, the organization features robust fundamentals. Critically, its home market took the decisive step in re-envisioning marijuana’s broader perception. But unless every Canadian citizen buys pot 24/7/365, CGC stock needs American help.

That’s a challenge because seemingly every country not named Russia has some beef with the U.S. President Trump has routinely belittled the leadership of both his northern and southern neighbors. Plus, Trump’s “build the wall” mantra would conflict with any federal re-scheduling efforts.

But the one thing the White House can’t ignore is the will of the people. Check that: The President can ignore it, but if he wants to be a two-termer, he must listen to populace trends.

As I’ve consistently argued, Americans want legal marijuana. It’s not just a sentiment originating only from coastal hipsters, either. Earlier this year, former House Speaker John Boehner joined Acreage Holdings’ advisory board, effectively becoming a prominent weed proponent.

Admittedly, it’s true that most Republicans are against legalization, although that statistic is lessening in scope. That’s the counterpoint to our own James Brumley referencing the Pew Research Center’s report that 62% of Americans support legalization.

However, even ultra-red conservatives can’t deny that looser marijuana laws have negatively impacted Mexican drug cartels. Trump can actually have both law and order, and a viable retail market if he plays his cards right. Of course, that’s a huge potential boost for Canopy stock.

Finally, let’s just talk money. At the beginning of this year, 25 states faced revenue shortfalls. Could legal weed remedy this situation? Certainly, it can’t hurt.

Most botany advocates discuss Colorado’s proven case study. But another angle is their debt reduction, which saw total government debt decline from $56.2 billion in 2015 to a projected $52.7 billion this year.

Canopy Stock Is Risky, But That’s Also the Opportunity

Now, I’m going to give it to you straight: politics is like the markets. Sometimes, the actual results don’t necessarily align with the fundamentals.

This is especially true for the Trump administration. The President is not likely to reverse his position on core issues. Law and order is one of them. Even if marijuana legalization quantifiably proves a safer society, the optics look bad. That’s the headwind for Canopy stock.

But on the flipside, this is also the opportunity. If everybody knew ahead of time that the U.S. will further loosen federal marijuana mandates, then CGC stock would have already skyrocketed.

As such, it’s this unknown that makes the investment so compelling. Canopy is in prime position to do damage. But will it get its chance? In my opinion, the broader pressures overwhelmingly favor CGC stock.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/canopy-growth-stock-is-primed-to-do-serious-damage/.

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