Canopy Growth Corporation (NYSE:CGC) just reported its Q1 2020 results, which gave CGC stock a bump, but still wasn’t what many investors were hoping for.
The company highlighted that the net revenue generated in the quarter was close to $91 million and that recreational dried cannabis sales increased by 94% over Q4 2019. In addition to this, international medical cannabis revenue increased by 209% versus Q4 2019.
The company also announced that it filed 56 patent applications during the quarter. This gives it an industry-leading patent portfolio of 111 patents and 270 patent applications. The company also believes that it is well-positioned to bring CBD products to the U.S. market by the end of fiscal 2020.
Wall Street as a whole is very bullish on Canopy. Of the 23 firms that follow it on a research basis, 12 of them have buy ratings. The average target price is near $54, which is about two times higher than where it is currently trading.
Continued Losses and CGC Stock
So, with all of this seemingly good news, why has CGC stock been so slow to grow?
In 2019 it lost $685 million CAD. This was significantly larger than the $70 million CAD loss in 2018 and the loss of $17 million CAD in 2017. Clearly this is not trending in the right direction.
Canopy also just reported a loss of $1.28 billion CAD for Q1 2020. The company points out that most of this was due to a one time charge, but even without the charge the loss was around $100 million CAD. Making matters worse is that analysts predict the company will continue to lose money in 2020.
The cannabis industry is in a consolidation phase. Historically, industries with tremendous growth potential tend to see explosive growth over the first few years before entering a consolidation phase. The most cited historical analogy to describe what happened in the auto industry.
Within a few years of it becoming a viable business, there were over 300 companies that produced automobiles. Within a decade, there were basically three. Similar dynamics also occurred in radio, television, software and other industries that experienced tremendous growth very quickly.
If history is any guide, and it usually is, many of the large industrial growers will not survive. The industry will soon enter a phase of takeovers and mergers. If Canopy wants to survive, it will certainly need to make some significant changes.
A Look at Canopy Growth Stock Chart
In April CGC stock traded as high as $52 per share. Since then it has dropped by about 50% with the most recent close being $23.58. It is oversold so it may rebound. If so, there will probably be some resistance around the $25.50 level because it was supported in January.
It is important to note that a recent upgrade had no effect on the stock’s trend. In August Seaport Global raised its rating from neutral to buy and put a $31 target on it. Traders would say that this failure to respond in a positive way to the upgrade is weak action and that the stock is not acting well.
At the time of this writing Mark Putrino did not have any positions in any of the aforementioned securities.