Over the years of watching Wall Street, I learned that we tend to trade “memes.” In 2017, the meme was bitcoin. In 2019, the meme is the cannabis trade. Today, I share my reasons why Canopy Growth (NYSE:CGC) stock is still the marijuana stock to bet on for those who want to be in on the pot trade long-term.
Investors are flocking to cannabis like moths to light; and like bitcoin, marijuana also extends to Main Street. Who among us doesn’t have a friend or two who have “invested” in pot stocks, or a cannabis venture of sorts, legally, of course?
Jumping in on any trade early when the concept is still a rising hot star is easy because all boats float. We all remember how popular Tilray (NASDAQ:TLRY) was in September as it hit $300 per share.
It’s all a dusty mess and it’s hard to sift through it to uncover the potential gems. Now that some time has elapsed and the peaks in the stocks have eased, it has become easier to identify which companies will lead the way.
It is almost never the case that the companies who started the movement get to thrive in the end. The cannabis industry, although it’s as popular as bacon, is still unproven as a public business concept. So from an investment perspective it’s a more of a bet than a fundamental thesis. Don’t hate me for saying this, because this is not the same as me denying its potential.
The Best Marijuana Stocks
Within that context, CGC has the best odds of winning since it has the fattest balance sheet, thanks to the $4 billion cash infusion it received from Constellation Brands (NYSE:STZ). So, CGC will have the best tools to bring to fruition whatever potential the cannabis industry has.
The process of incoming investments from companies like STZ — and Coca-Cola (NYSE:KO) into Cronos (NASDAQ:CRON) — is an important part of the thesis. This helps investors uncover potential winners. This way we get to leverage their due-diligence and research. In this case, I can rest assured that STZ did a lot of homework before they sank a big pile of cash into CGC.
Investing in the pot stocks is insane from the traditional sense. They have massive valuations. Marijuana stocks’ market capitalization is in the range of 300 to 1. This won’t be a value-based investment. To justify buying Canopy Growth stock, we’d have to look way past this or look to next year’s results.
Bottom Line on Cannabis Stocks
There will need to be a huge explosion in the marijuana legalization trend, big inroads in the drinkable products, and a bigger scope of adoption by the medical community. All of this to happen quickly is a tall order. But the consensus is that the pursuit is worth it since there will be a giant pot of gold … pun intended.
For the short-term, CGC stock is technically trading in a tight range. Those usually end in a breakout from that zone but the direction is unknown. However, CGC has recently defended its February lows, and it did so above a recent cluster of support from the December drubbing.
This favors the odds of a bounce to breach $49 per share. That would bring in momentum buyers to $55. But there will be resistance along the way, at levels such as $45 then $47.
In summary, the marijuana stock trade at this stage is mostly a general concept. The bullish thesis on cannabis is very broad, so it’s easy to embrace and difficult to short. This also contributes to levitate investor enthusiasms. Nevertheless, this is a viable long-term thesis and Canopy Growth stock would be my pick of the proverbial litter.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
