As an investment and following earnings, Canopy Growth (NYSE:CGC) has continued to look like the title of a Cheech & Chong movie. But is now a better time to buy or short CGC stock? Let’s see what’s happening off and on the price chart to determine whether investors should buy, sell, or simply hold off on CGC stock.
Last week wasn’t a pretty one for Canopy investors. Shares plummeted to year-to-date lows amid a bevy of uniformly disappointing reports and bearish reactions in publicly-traded cannabis companies. From Cronos (NASDAQ:CRON), to Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB), no one company was immune, including the market’s largest player Canopy Growth stock.
Shares of CGC finished the week down nearly 29%, increasing the year-to-date burn to a painful 45% decline in shareholder value. By the numbers CGC stock lost 81 cents per share on revenues of $57.78 million. Both the bottom and top lines fell well short of Street estimates, which called for a loss of 31 cents on sales of $75.42 million.
What went wrong? Admitted demand missteps and miscalculations with the cannabis oil market didn’t help with CGC stock’s losses and soft Q1 sales. Sluggish licensing approvals resulting in slow-to-open retail store fronts were also blamed. In Ontario, Canada’s largest province, nearly one year into legalization of cannabis and just 25 storefronts are open for business. That’s a nearly laughable one store for every 600,000 people.
Was there any good news? CGC stock’s interim CEO notes, stores will continue to open and Canopy has “the strength, resources and build out to weather the short-term storm.” And with its Constellation Brands (NYSE:STZ) partnership there’s little reason to doubt that view. As well, Canopy Growth stock stands to benefit from next month’s legalized roll-out of derivative products.
Coined Cannabis 2.0, edibles, vaporizes and beverages will be legal for sale in Canada in December. It’s expected this will help with black market competition. The introduction of friendlier-looking cannabis intake far-removed from sophomoric conspicuous consumption ingrained in movies like Cheech & Chong’s “Up in Smoke” stands to benefit sales and margins in a big way.
But is this enough to invest in CGC stock today? Given the failed promises and disappointments this year, I’d caution against it. And irrespective of whether you believe Canopy can turn the corner and remain an industry titan over the long-haul, the price chart offers little evidence of a profitable buy decision made today.
CGC Stock Weekly Chart
Last month I warned CGC stock was not worth buying. That was certainly the correct call. Now and despite even larger declines in shares, technically the situation has deteriorated further for bullish investors. The weekly chart shows shares of Canopy managed to break beneath a small consolidation on heavy and above-average volume last week. The combination is problematic, but it gets worse.
The congestion pattern had attempted to find support at the 76% retracement level tied to CGC stock’s key 2016 low. The cycle low followed investors “first whiff” of interest in Canopy shares. This failure increases the chances of a full-fledged return move of 100%. That would mean an eventual challenge of $4.90 in shares.
Bottom-line, there are no guarantees of where and when CGC stock will bottom. But I can state with decent authority, it’s not happening today. And with last week’s heavy, but non-climatic selling pressure, lack of Bollinger Band price support and neutral stochastics in jeopardy of forming a bearish crossover, there’s growing evidence the worst is not over for Canopy Growth.
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.