When I was asked to opine about Canopy Growth (NYSE: CGC) stock, I vowed to myself to resist the temptation to make weed-related puns, other than to note that expectations for the Canadian company are “sky high,” meaning a bit nutty.
I don’t know how else to describe an unprofitable company with a history of earnings misses that has managed to rocket 57% since the start of the year, outperforming the S&P 500. which rose 13% during that same time period.
The Smokin’ Hot Returns of Canopy Stock
Wall Street analysts have an average price target on CGC stock of $58.53, almost 40% higher than where CGC stock price closed Friday, even though analysts don’t expect the company to be consistently profitable until 2021, despite the $4 billion investment it got from Constellation Brands (NYSE:STZ) last year.
There are many red flags for skeptics on CGC stock to focus on. Among these red flags are the 26 acquisitions and eight financing deals the company has done in less than five years, which is a lot of deals for a company that was founded in 2009.
The Mother of All Growth Spurts
I can’t imagine the difficulty of growing CGC’s workforce from 156 in 2015 to more than 2,700 as of the most recent quarter or of keeping a watch on its surging R&D expenses, which were $3 million in the latest quarter versus $500,000 a year earlier.
Even so, I am not going to trash CGC stock because I may one day be able to benefit from the products the company makes to treat Parkinson’s Disease, which I have. Parkinson’s is the second-most common neurological disease behind Alzheimer’s.
My Personal Interest in CGC Stock
On Facebook, I have seen videos of my fellow Parkinson’s victims whose symptoms seem to disappear after taking cannabidiol or CBD, a compound derived from cannabis that lacks the THC which makes users high.
I am not sure who is behind the posts or how long the relief lasts. Fortunately, my Parkinson’s hasn’t progressed as far the people in the videos I saw, though I worry that it might someday. Since I am not a doctor, I will refrain from speculating about the scientific issues at play here.
I am taking the wait-and-see approach to CBD advocated by The Michael J. Fox Foundation because results of scientific studies on the topic have yielded mixed results. CBD has proven to be beneficial in treating some forms of epilepsy and may prove to have some efficacy when it comes to treating anxiety. Unfortunately, some CBD companies are making irresponsible claims that the compound can cure cancer.
Quality Control Problem
Of course, scientists have been reluctant to study the health benefits of cannabis since it remains illegal under U.S. federal law.
Another one of the weaknesses of the CBD market is quality control, which Canopy is in a position to address thanks to its recently announced $150 million hemp processing plant that it plans to build in New York State.
The Bottom Line on Canopy Growth Stock
Investors with a high tolerance for risk should buy Canopy stock, but do me a favor and make your decision before indulging in the company’s non-CBD products.
As of this writing, Jonathan Berr doesn’t own any shares of any companies discussed in this post.