Winter Is Make or Break for CGC Stock

Pot stocks have fallen out of favor among investors over the past year as worries about legalization issues and intense competition hurt the industry as a whole. However, despite the negative sentiment regarding the marijuana sector, most agree that the industry is poised to deliver explosive growth over the next few years. That’s especially true if the U.S. eventually legalizes the drug at the federal level.

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Those issues coupled with concern about operations has sent Canopy Growth (NYSE:CGC) markedly lower this year. CGC stock is down more than 60% from its April highs above $50 per share as many question its direction and whether it can execute on its future growth plans.

CGC’s CEO Drama

Earlier this year Canopy Growth stock was hit hard by news that its founder and CEO Bruce Linton had been ousted as the firm’s partner, Constellation Brands (NYSE:STZ), took the reigns at CGC. Now, Linton’s co-CEO Mark Zekulin is serving as an interim CEO while the firm looks for a replacement, at which time Zekulin plans to depart as well.

The new CEO could be the push CGC needs, especially considering he or she is expected to be named before the end of the year. This winter is a crucial time for Canopy Growth stock as the firm’s consumable pot products will hit the shelves in Canada for the first time.

Edibles and CGC Stock

In mid-October, Canada completed another phase of marijuana legalization dubbed “cannabis 2.0.” This phase allows the sale of consumables, a market that Canopy is primed for. However, as distributors are required to give regulators 60 days notice before bringing their goods to market, cannabis-infused drinks and snacks won’t be on sale until mid-December.

This week Canopy revealed its lineup of cannabis-infused drinks, many of which come with a THC dosage of 2.5 milligrams. This is lower than many drinks on the market right now in the U.S. that boast doses of 100 milligrams, but according to CGC management consumers may prefer a more measured approach.

Cohen analyst Vivien Azer also praised CGC’s low-dose approach saying it would allow consumers to have more than one drink, much like they would if drinking alcoholic beverages. 

CBD Market

Another big step for Canopy this winter will be the firm’s push into the sports market with CBD products. Earlier in October, Canopy Growth acquired a majority stake in BioSteel Sports Nutrition in an effort to establish a line of infused athletic products.

While very little usable data on the growing market for CBD among athletes is available, a study by Brightfield Group shows that U.S. CBD sales could reach $23.7 billion by 2023. By the end of 2019, the CBD market is expected to be worth $5 billion, a 700% increase from where it stood in 2018.

There has been a lot of discussion over whether the BioSteel purchase was worth it considering the firm’s financial situation. However, if it’s able to use the firm’s leverage among athletes go gain a larger slice of that ever-expanding pie, it could be a boon down the road.

Cost Control

Moving forward, CGC will need to get its spending under control and give investors a clear path toward profitability before it can make its way back into their good graces. That will begin with a new CEO who’s able to execute on the firm’s edibles strategy now that cannabis 2.0 is upon us.

The first big step in CGC stock’s recovery will be the naming of a new CEO that investors trust to right the ship. Most are expecting the new name to fit in with Constellation’s management style, as the firm has all-but taken control of Canopy at this point. 

Next will be the success or failure of Canopy’s edibles lines. The firm suffered a few missteps last year when Canada began its first wave of marijuana legalization, so investors will be looking for a smooth transition into phase 2. Actual sales figures won’t be available until the firm’s Q4 results are out, and even then the snapshot will be limited. However if CGC is able to establish a strong position in Canada’s edibles market, it could be a sign of better times to come in 2020.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities. 

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