Canopy Growth (NYSE:CGC) has tried the patience of investors in 2019, as have most marijuana stocks. But last Monday, Canopy Growth stock surged by a whopping 14%. On Thursday, it popped another 4%. What is happening to CGC stock, and is there any chance last week’s performance might turn into a full-blown recovery?
CGC Gets a New CEO
Canopy Growth has had more than its share of leadership drama in 2019. In July, CGC stock took a hit when its founder and co-CEO, Bruce Linton, was ousted. The company’s CEO saga continued last Monday.
A bit of background first. Last November, American beverage giant Constellation Brands (NYSE:STZ) invested $4 billion in CGC. It was reportedly Constellation’s impatience with Linton’s management that led to his ouster.
After coasting for months with an interim CEO, Canopy Growth announced on Monday that David Klein would be resigning as Constellation’s CFO to become the cannabis producer’s new leader. Effective Jan. 14, 2020, Canopy Growth will have a CEO with Fortune 500 experience and a background in the distribution of highly regulated products (alcoholic beverages). That move is making investors very happy and has triggered a rally of Canopy Growth stock.
Canopy Growth’s recruitment of a CEO with serious credentials helped boost CGC stock this week. But other marijuana stocks also jumped last week.
Hexo (NYSE:HEXO) was up 8.6% last Monday, Aurora (NYSE:ACB) gained 7.8% last Monday and Cronos (NASDAQ:CRON) closed up nearly 4% last Monday. Clearly, there was a positive event that had a ripple effect through the cannabis sector. The positive catalyst was the rollout of Cannabis 2.0 in Canada.
Specifically, starting tomorrow, Canadian cannabis retailers will be able to begin selling cannabis-infused products, including edibles, vape juice, and drinks.
The products became legal on Oct. 17, but companies had to undergo a lengthy approval process before their cannabis-infused products could be sold. Tomorrow consumers will actually be able to buy such products. Investors are hoping that Cannabis 2.0 will light a fire under cannabis producers after a disappointing first year of legalization in Canada.
Adding fuel to that fire — and helping to boost Canopy Growth stock on Thursday — was the announcement that the government of the Canadian province of Ontario was making it easier for recreational cannabis stores to open in the province.
Relatively few legal cannabis shops have opened in Canada’s most populous province. That issue has kept black market sales strong while hurting legal cannabis producers. With an additional 20 stores per month set to open starting next year, legal cannabis sales are expected to get a huge boost. That could be positive for CGC and Canopy Growth stock.
The Bottom Line on Canopy Growth Stock
If you are a CGC investor and have held onto your Canopy Growth stock for a long time, you probably bought CGC stock for more than Friday’s closing value of $20.68. Considering that Canopy Growth stock was trading over $52 earlier this year, the odds are you paid considerably more than $20.68.
But unfortunately, analysts aren’t buying into Cannabis 2.0 and they’re not yet convinced that Canopy Growth’s new CEO will be able to right the ship. The analysts polled by CNN Business have an average rating of “hold” on CGC stock, with a median 12-month price target of $19.63. So you should probably hold onto your Canopy Growth stock until analysts get more bullish, helping to lift the share price.
If you are looking to make an investment in the cannabis sector, Canopy Growth is one of the better bets in the space. It’s big, it has the backing of Constellation, a Fortune 500 company, and it will soon have a CEO with Fortune 500 experience. However, all of that doesn’t magically negate the challenges of the cannabis market. In 2020, the owners of marijuana stocks may be as disappointed as they were in 2019. And given the fact that the analysts’ average price target is well below the current price of CGC stock, investors who are considering buying Canopy Growth stock may want to hold off for awhile.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.