For most of 2019, Canadian cannabis leader Canopy Growth (NYSE:CGC) stock was a slow motion train wreck. Between the close on May 1 and Nov. 18, CGC slipped from a high of $50.68 to as low as $14.22 thanks industry hiccups, the dismissal of CEO Bruce Linton and poor earnings.
However, since late November, CGC stock has staged quite a really back to just above $20 a share, as New Year 2020 begins to look promising.
For one, at least 10 U.S. states have cannabis on their ballots for November. U.S. legalization just advanced in Congress with the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. Presidential candidates are embracing reform, using it as a platform. President Trump noted he supported state marijuana laws without federal interference. Better, more than two-thirds of Americans favor cannabis legalization.
So, while Canopy Growth may appear to be a slow motion train wreck now, it could double, if not triple as we near the 2020 elections.
Canopy Growth has Plenty of Catalysts
It’s clear that Canopy has a wealth of catalysts fueling a strong new year. After Constellation Brands’ (NYSE:STZ) frustration with former CEO Bruce Linton, he was ousted and has been replaced by CGC’s former CFO David Klein. That means that, effective Jan. 14, CGC will have a new CEO with strong experience in the consumer-packaged goods (CPG) and alcohol beverages markets. This is the key reason the CGC stock has recovered as nicely as it has.
Bank of America analyst Christopher Carey called the announcement “a clear win for Canopy” and “an important step in moving its leadership from visionaries … to operators.”
Another catalyst is the possibility that CGC may be a buyout candidate in 2020. In fact, Cantor Fitzgerald analyst Pablo Zuanic is predicting a “two-thirds probability” that Constellation could soon bid for the part of Canopy that the iconic beer maker doesn’t already own. At the moment, STZ owns 38% of Canopy Growth stock.
Canada’s Cannabis 2.0 Would Help Fuel Highs
According to analysts at Deloitte, Canada’s latest legalization phase could create a $2.7 billion opportunity for the industry, as I noted in late September 2019. In fact, according to Deloitte’s report — Nurturing new growth: Canada gets ready for Cannabis 2.0 — legalization of edibles will “create new product mixes that will reach consumers who may have been reluctant to try traditional cannabis consumption methods.”
In early January 2020, CGC is expected to roll out its first cannabis products, including cannabis chocolate, including Tokyo Smoke Go, Tokyo Smoke Pause, and Tweed Bakerstreet chocolate bars; and distilled spirits, including Tweed Houndstooth & Soda, Houseplant Grapefruit, and Houseplant Lemon.
Bottom Line on CGC Stock
With a new CEO at the helm and new Cannabis 2.0 products soon rolling out, investors seem excited about the Canadian cannabis producer stock. Analysts, including Cantor’s Zuanic see the THC and CBD drinks due to hit the market be a game changer for Canopy, as well as Constellation. And not just in Canada.
To be sure, it took them long enough to find a new CEO, even if they ended up finding one so close to home. Yet, once he’s in place, expect him to home in on the need to reduce Canopy’s costs. Getting the company within spitting distance of break even would be a whole new ball game.
For me, CGC stock is a long-term buy and hold in an industry that could be worth billions of dollars.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.