It hasn’t been a great year for Canopy Growth (NYSE:CGC), but marijuana stocks, in general, have been a huge let down in 2019, and many caution that 2020 could bring more of the same.
That’s because wide-scale legalization is unlikely any time soon in the U.S. and countries where the drug has gained legal status, like Canada, are struggling to keep up with the volume of producers.
However, those challenges won’t last forever. Ultimately, a legalized marijuana industry across the globe looks likely over the next decade, making cannabis stocks a worthwhile consideration for long-term investors.
Of course, choosing a cannabis stock so early on is a tricky business. That’s especially true when you consider how much marijuana firms are struggling right now. With that in mind, Canopy Growth looks like one of the better options out there right now.
CGC Poised to Turn Around
Back in November, I wrote that this winter was a key turning point for CGC for two important reasons. The first was the firm’s lack of leadership and the second was its execution with edibles in Candada’s ‘Cannabis 2.0.’
The first part of those conditions has been met with an impressive, though expected, new CEO for Canopy. David Klein, the former CFO at Constellation Brands (NYSE:STZ), will be taking over at the helm in mid-January. Klein makes perfect sense as CGC’s new CEO for a few reasons.
First, he has a wealth of top-level management experience within a highly regulated industry. That’s going to help position Canopy for success as it competes in newly-legal marijuana markets. Second, he’s linked to Constellation, which has all but taken over Canopy. His experience at Constellation will allow him to drive CGC alongside STZ which can only be a good thing for both firms.
So, on the subject of naming a suitable CEO, CGC has hit the nail on the head. The announcement helped bring Canopy stock meaningfully higher, underscoring investors’ confidence on Klein.
Cannabis 2.0
The second, and arguably more important, driver of success for a full-fledged turnaround is Canopy’s ability to execute now that edibles and cannabis-infused drinks are legal in Canada. In Canada’s first phase of legalization, Canopy was hurt by missed opportunities so this time around the firm needs to prove itself.
This December the new products finally started to hit shelves after being scrutinized by regulators.
So far, it appears Canopy’s product lineup is strong. The firm is focused on drinks, mixers and chocolates. Canopy’s drink offerings are varied with some boasting 10 milligrams of THC (Canada’s legal limit) as well as a line with a small, 2 mg doses to allow for social drinking.
No Way to Tell Yet
As the first day the beverages and chocolate bars can be purchased by consumers wasn’t until December 17, it’s difficult to say whether CGC has hit the target on Cannabis 2.0.
When the firm reports its Q4 results, investors will almost certainly be looking for some indication of how well Canopy’s offerings are performing so far. But a real snapshot of CGC’s success in Canada’s edibles market won’t be available until Q1 at the earliest.
The Bottom Line
That offers investors a chance to buy CGC before the brand touts its success. As with the naming of Daniel Klein as new CEO, success in Cannabis 2.0 will likely boost CGC’s share price significantly. Of course, another rollout riddled with issues could take the stock in the opposite direction.
Profits are king in any industry, but especially in the marijuana space where investors are looking for companies that will be leaders over the next decade. Right now Canopy’s path to profitability is muddy, but all of that could change with a new CEO on board.
CGC isn’t totally out of the woods just because Klein is steering the ship, but it’s a timely reminder that Canopy is backed by Constellation— which makes it much more secure than some of its peers.
Experience, but more importantly, money, has created a safety net for Canopy as the industry develops which will likely ensure that Canopy retains a top spot in the cannabis space.
Investors who already own Canopy could benefit over the long term, with the potential of some near-term gains in 2020 if CGC is successful in Canada. For those considering adding Canopy, if you’re comfortable with the risks that marijuana stocks carry, Canopy is one of the best picks.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
