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Will Cannabis 2.0 Save Canopy Growth Stock?

The management of Canopy Growth believes that Cannabis 2.0 will be a major catalyst for CGC

If you follow the cannabis industry, you are probably familiar with Canopy Growth Corporation (NYSE:CGC). In August 2018, CGC was considered to be one of the pioneers and leaders of the industry. Analysts and the financial media were very bullish on its prospects. In the months leading up to Canadian legalization of cannabis in October 2018, the price of CGC stock more than doubled.

CGC Has Fallen Upon Hard Times

CGC Stock Looks Like a Buy Even as It Heads Towards Lows for the Year
Source: Jarretera / Shutterstock.com

Since then, things haven’t worked out so well for Canopy Growth, and the owners of Canopy Growth stock have been suffering. The price of the stock has dropped from around $55 to yesterday’s closing price of $24.74. The owners of marijuana stocks are finally realizing that many of these companies are losing money.

In fiscal 2019, which ended in June, CGC reported a loss of $685 million. Much of that loss was due to one-time accounting charges, but even excluding them, the loss was still large.  In fiscal 2018, Canopy Growth lost $85 million.

The poor performance lead to the unceremonious ousting of Bruce Linton, the CEO and co-founder of the company. Since then, Canopy has been like a ship without a rudder. It currently has an interim CEO, and the board of directors has not yet found a permanent replacement for Linton.

Will Cannabis 2.0 Save Canopy?

Cannabis 2.0 will soon be upon us. This term refers to the legalization of edible cannabis products, as well as cannabis-infused drinks and marijuana vaping products, in Canada. Last year, dried flower was legalized in the country, but those other products were not.

Canopy sees the legalization of these products as a major catalyst for the company. It is focusing on developing vaping devices and cannabis-infused beverages to position itself for the change. Instead of finding a partner or buying a company, CGC is doing its own research and development.

Will this be enough to turn the company around? I suppose it is too soon to tell. But based upon its track record, I wouldn’t run to buy Canopy Growth stock.

The market for the new products will be as competitive, if not more so, than the current market for dried flower. In addition, most of Canopy’s growing operations are done indoors. This method may have some advantages, but it is much more expensive than growing cannabis on a farm or in a greenhouse.

In addition, the board’s decision to fire its CEO without having a backup plan wasn’t a very smart thing to do. And the board has still not hired a permanent replacement. In light of the board’s decisions in this area, I don’t have much confidence in it.

But Wall Street analysts like Canopy Growth stock. 25 firms follow it, and 14 of them have “buy” ratings on the name. Their average target price on CGC is around $40 per share, 60% above its current level.

What’s Next for CGC Stock?

There is some support for Canopy Growth stock around the $23 level. That is where it bottomed at the end of August and in early September. Given how poorly the stocks of other cannabis growers have performed recently, there is probably a good chance that the shares will fall below that support level and subsequently decline further.

At the time of this writing, Mark Putrino did not have any positions in the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/will-cannabis-2-0-save-canopy-growth-stock/.

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