A conversation regarding cannabis stocks in today’s market wouldn’t be complete without mentioning the name Canopy Growth (NYSE:CGC). Investors certainly can say that CGC brings notoriety, but profitability is an entirely different matter. But based on what’s happening off and on the price chart, CGC stock could finally be signaling a turn for the better.
It would be hard to talk about tech stocks and fail to mention market leaders such as Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) or at least one of the FAANG stocks like Amazon (NASDAQ:AMZN) or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Each has massive influence on consumers, all are highly profitable and they’ve all been amazingly rewarding as portfolio holdings for investors.
On the other hand and in the growing cannabis market, CGC stock hasn’t proved nearly as successful. Not yet, at least. The company is the largest in Canada — and in the broader cannabis market. It also has the size and the backing of partner Constellation Brands (NYSE:STZ) in its corner. But that’s about it. In truth, both cannabis and CGC still have a lot to prove before investors can compare them to large-cap tech and its most influential companies.
Last Month’s Earnings Release
Let’s just say that last month’s earnings release failed to help Canopy Growth stock. Shares get walloped with Wall Street sending CGC stock to fresh relative lows in 2019. And sales came in beneath analyst views. Not only that, losses of $3.70 per share skyrocketed for the quarter and much to the chagrin of investors, were well above forecasts.
Now for the good news. Canopy’s massive loss in excess of $1 billion was largely the result of the company extinguishing warrants with partner Constellation Brands. That’s a one-off. Revenues also grew handsomely year-over-year with higher-margin oil products leading the charge. International sales also saw promising revenues of $10.5 million.
According to the CEO, Canopy is on track with building and developing CGC’s intellectual property, brand and global reach and committed to growing a sustainable, higher margin and ultimately, profitable business as new value-add products enter the market.
Lastly, now and for the first time in many months, there’s a couple powerful reasons for investors to consider buying a position supported by the CGC stock price chart.
CGC Stock Weekly Chart
I’ve been a critic of CGC in recent months. I most recently emphasized that investors looking to buy shares should clearly wait until the dust settled before maybe considering a purchase of Canopy Growth stock. Several weeks later, the possibility for making a stronger purchase is finally taking shape in CGC.
Technically, shares of CGC stock have formed a large undercut variation of the double-bottom pattern. This completed with the August low taking out the December bottom before CGC reversed higher in early September. With the formation also piercing the critical 62% retracement level, the price action looks more compelling as weaker hands get washed out under the belief support has failed.
The combination of testing and the double-bottom pattern could be a powerful one to say the least. And there’s more support for this bottom to play out as a meaningful low in CGC stock. After a couple weeks of pulling back, shares are now forming a bullish higher low “mini” double bottom.
Conditions could be turning around for Canopy Growth and the evidence supporting a long position is there. All that’s needed is a small bit of price confirmation next week for both buying CGC stock and keeping a lid on losses in the event a very promising bottom is nixed in the bud.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
