Someday, man. Someday we’ll all be able to chillax with a doobie and the fuzz won’t be able to harsh our mellow. This is the promise of marijuana stocks, like Canopy Growth (NYSE:CGC). The promise of legal pot, of Canadians and Americans puffing away happily on legal weed, made Canopy one of the great stocks of 2018.
That promise is also making Canopy one of the lousiest stocks of 2019. Nirvana hasn’t come. While Canada legalized marijuana sales a year ago, its provinces are still dragging their feet. It’s still a Schedule 1 drug in the U.S. along with heroin and LSD, even though 11 states including Illinois now claim it’s legal.
Don’t Worry About CGC
The sky-high valuations given pot companies, including Canopy Growth, were never justified by results.
Canopy shares are down 56% over the last year. Even at its Oct. 23 opening bid near $21 it’s still overpriced. Its market cap is $7.4 billion, but its sales over the last year were just $290 million.
But if you must own a marijuana stock, this is the one to have. Canopy had over $3 billion in cash and short-term securities on its books at the end of June. That’s enough to make you forget the numbers. The most recent quarterly report on Canopy was for June, indicating a loss of 23 cents per share on revenue of $67.6 million. That beat estimates by 38%, as analysts expected a loss of 37 cents.
Canopy is still a buyer and looking to open new markets. It has finished the acquisition of Beckley Canopy Therapeutics. Its Spectrum Therapeutics unit sells the ingredients of marijuana as medicine, and it now has better European distribution.
Having ditched the old Canopy executive team, headed by Bruce Linton, Constellation is seeking replacements. The cavalry is expected by the end of the year.
Canopy is Constellation’s company now. Constellation has a market cap of over $38 billion. Constellation can wait for legal marijuana’s chance.
CBD Snake Oil?
Meanwhile, Canopy has taken a majority stake in BioSteel Sports Nutrition, which makes drinks for athletes. Canopy plans to add CBD, a marijuana derivative, to BioSteel’s drinks. Whether the dozens of teams now buying BioSteel products swallow it is up to them.
Canopy insists that cannabidiol, which unlike THC doesn’t produce a high, is nevertheless an effective anti-inflammatory. With opioids on the way out, millions of patients are desperate for something beyond the nonsteroidal anti-inflammatory drugs like aspirin and ibuprofen to relieve pain.
CBD exists in a legal gray area, unregulated, without clinical studies needed to back its claims of effectiveness. Still, it’s being sold as a pain reliever, an anti-aging compound, even a cure for dogs afraid of fireworks.
The Bottom Line on CGC
The CBD market is headed for trouble. The legal market for marijuana — the drug which actually makes people high — can’t open fast enough for CGC stock.
Canopy is the best pot stock to own only because it has Constellation Brands, which has the financial strength to wait for the market to open, behind it.
I’ve written before that this is a “let the buyers beware” situation. You need to be wary of any management claims. If I believed in pot — and I don’t — I’d be buying Constellation stock. Despite Canopy’s woes it’s still up 20% so far in 2019.
If you must have a joint, at least don’t give up on beer.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.