From mid-December to late January, Canopy Growth (NYSE:CGC) stock staged an impressive rally, going from $26 to $48. But since then, the bullishness has cooled off. Canopy Growth stock has essentially been in a trading range of $44 to $48.
This should not necessarily be a surprise, though. Of course, it’s typical for high-growth stocks to stabilize from time to time and establish support levels. Yet I think regarding CGC stock right now, it is temporary. For the most part, the company is among a handful of premium operators in the cannabis industry.
And considering the dynamic nature of the business, the company is likely to see much more good news.
No doubt, one part of the story to note is the backing of Constellation Brands’s (NYSE:STZ). Keep in mind that the relationship is much more than the $4 billion investment (although, this is certainly very important). STZ brings many advantages to the table.
For example, the company has a solid platform for marketing, R&D, consumer research and M&A. Then there is the set of marque brands like Corona Extra, Corona Light, Modelo Especial, Modelo Negra and Pacifico. Oh, and yes, the distribution is extensive, with positions in the U.S., Mexico, New Zealand, Italy and Canada.
Now with any strategic partnership, it takes some time to launch new initiatives. Yet, STZ probably has a sense of urgency as evidenced by its sizable investment. The company is also looking for ways to gin up growth. In other words, we should see some interesting developments from STZ-CGC in the coming months. Although, CGC has already started to use the capital, such as with the acquisitions of Storz & Bickel and the assets of ebbu Inc. And we’re seeing Canopy Growth use its brand cache, partnering with Seth Rogen and Evan Goldberg’s cannabis brand, Houseplant.
In the meantime, the company is poised to reap strong gains from the legalization of recreational marijuana in Canada. In the latest quarter, revenues surged by 282% to $83 million and about $59 million of this was from sales for recreational purposes. To put things into perspective, the number of units exceeded all that was produced in the company’s history.
But interestingly enough, it looks like another market is about to open up in a big way and should be a nice driver for CGC stock: Cannabidiol (CBD). This includes compounds found in the cannabis sativa plant, which do not produce a high. Note that CBDs have been shown to have powerful therapeutic benefits.
Well, the recently passed U.S. Farm bill is likely to supercharge the market. The reason is that legislation took CBDs off the list for illegal substances.
Just how big is the market in the U.S.? Based on research from the Brightfield Group, CBD spending is forecasted to reach a whopping $22 billion by 2022.
As for CGC, the company has been investing in its CBD business for some time. Besides ramping up hemp production, there has also been a focus on creating consumer packaged goods. For example, the company recently entered a deal with Martha Stewart’s Sequential Brands Group, so as to create CBD remedies for pets.
Bottom Line on CGC Stock
During the past year, we have gotten more choices — like Cronos (NASDAQ:CRON), Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB) — to invest in the cannabis market. No longer is there a need to make purchases on Canadian exchanges or illiquid over-the-counter markets.
But among the cannabis stocks, CGC really does stand out. It has a vertically integrated platform, strong financial backing, a growing medical business and a global footprint. And while there will certainly be volatility, which is natural for high-growth companies, CGC stock remains a great way to play the cannabis boom.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
