With the stock market under pressure, not many investors are flocking to speculative holdings like Canopy Growth (NYSE:CGC). Even though the industry has promise and CGC stock is considered one of the better marijuana holdings, investors are steering clear for now.
That’s caused Canopy Growth stock to fall, now hanging around its November lows and significantly below its October highs. Of course, political events have played a big role in the rallies, but so far, they have only set up as “sell the news” events.
Specifically, Canada’s decision to legalize recreational marijuana use in mid-October caused a temporary spike, which was eventually sold into as the overall market came under pressure. In early November in the lead up to the midterms, pot stocks again popped on optimism over wider acceptance. That rally was short lived too. Investors are now wondering what catalysts still exists for an investment.
Is Canopy Growth Stock a Good Company?
Not many people are going to argue that acceptance of cannabis isn’t growing. We’ve seen that with our neighbor to the north, as well as multiple states throughout the U.S., both for recreational and medical use. As this trend continues to push forward, it will be a boon for these companies.
What investors are trying to figure out is, which company will be best positioned? By now it’s no secret that Canopy Growth stock has a big partner in Constellation Brands (NYSE:STZ), given that the latter has a ~40% stake in the former and has invested billions in the name. That goes to show that while Tilray (NASDAQ:TLRY), New Age Beverages (NASDAQ:NBEV), KushCo (OTCMKTS:KSBH) and others may benefit, CGC has the blessing (and dollars) from a big-time, high-quality investor.
Given this budding trend, I’d be surprised if there weren’t more deals on the way involving other companies and opportunities. In any regard, countries are quickly looking to regulate marijuana for medical use in an effort to break away from opioid dependency, Canopy CEO Bruce Linton said. We’re seeing it in Europe and given the opioid crisis we have in the U.S., it too likely isn’t far behind.
That will draw in the pharmaceutical players some time in late-2019, Linton estimates. That bodes well for companies like CGC and GW Pharma (NASDAQ:GWPH), which is down almost 30% from its highs in September.
The only problem? While many of us willingly concede that the cannabis market is set to be a big one, plenty of hurdles — most of which are regulatory and political — are still in the way. Plus, many of these companies already sport huge valuations. Ultimately, it comes down to investors’ time frame.
Trading CGC Stock
Maybe it would help if we could glean some insight from the charts. For many, we’re talking about a multi-year investment thesis for these stocks to play out. While CGC stock will likely be a big winner in it all, no one want to hold onto a stock that could be a dud for several years or decline more than 50% before it turns it around.
This isn’t necessarily the fault of the company or its management, but simply how market mechanics work. Let’s look at CGC stock charts to get a better idea on where it may go.
There’s been a steady uptrend (blue line) in place since the February lows. With Tuesday’s decline, Canopy Growth stock was teetering right on this mark. After Thursday’s fall though, the action is concerning. Now below this level, CGC is sort of in no man’s land.
If we can’t get back above uptrend support, the next level of support could come into play around $25, which would put CGC stock flat on the year. On a rally, it will be important to see if Canopy can get back above uptrend support. If it can, look to see if it can challenge downtrend resistance (purple line) and the $35 level.
Make no mistake though. While CGC may be a fine company over the long-term, its short-term charts do not look encouraging.