Last year, the cannabis trade was an absolute nightmare. Just about every company came under the crush of heavy selling like Cronos Group (NASDAQ:CRON), Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB).
The main reason for this? Simply put, the legalization of cannabis in Canada was overhyped. It also did not help that there were problems with getting retail permits and that black market activities got worse.
Despite all this, I think much of this has been baked into the valuations. In other words, there are some interesting opportunities for investors.
One that is a standout is Canopy Growth (NYSE:CGC) stock. It is a clear leader in the space, with advantages like the following:
- The company has roughly $2.7 billion in the bank. This puts CGC in a strong position as funding has been drying up for cannabis operators.
- Canopy has leading market share positions – of over 35% — in Alberta, which is the most developed recreational market in Canada. There are also supply agreements with government agencies in ten Canadian provinces and territories.
- The Spectrum Therapeutics medical subsidiary is a major player in the medical cannabis space, with about 75,600 patients.
- There is about 5.4 million square feet of licensed capacity in operation in Canada.
All in all, Canopy Growth stock has the benefit of tremendous scale, diversification and liquidity. Because of this, it seems like a pretty good bet that – even if the shakeout continues in the industry – the company will be a long-term winner.
The Drivers for 2020
One of the many dramas for Canopy Growth stock during 2019 was the termination of CEO Bruce Linton. The company’s largest shareholder, Constellation Brands (NYSE:STZ), simply got fed up with the losses that were piling.
So, the replacement for Linton will take the helm in mid-January. He is David Klein, who has served in senior leadership roles for the past 14 years at STZ. According to the press release:
His capabilities include extensive CPG and beverage alcohol industry experience, strong financial orientation, and experience operating in highly regulated markets in the U.S., Canada, Mexico and Europe. David is an experienced strategist with a deep understanding of how to build enduring consumer brands while leveraging operational scale across a dispersed production footprint. He is a strong leader with a proven track record of developing diverse and high performing teams.
Yes, these are the kinds of skill sets that will be crucial for the success of Canopy Growth stock. Initially, Klein is likely to focus on streamlining the organization to get on a path to profitability. But in the meantime, there are some catalysts that should help bolster growth.
For example, the U.S. market is looking more promising. Because of the Agriculture Improvement Act of 2018, CGC has been able to introduce hemp and CBD offerings into the market (such as the First & Free line). This has been the result of investments in building a supply chain for hemp cultivation, processing and production.
And if there is legalization on a federal level in the U.S., Canopy will be positioned to benefit as it has a partnership agreement with Acreage Holdings.
That said, the Cannabis 2.0 opportunity is probably the most important catalyst for the company. This has legalized edibles in the Canadian market, which could be worth $2.7 billion based on research from Deloitte.
CGC is definitely prepared. Keep in mind that it already has more than 30 SKUs submitted to Health Canada for vapes, chocolates and beverages.
Bottom Line on CGC Stock
Since mid-November, Canopy Growth stock has staged a nice rally, going from $14 to $20. True, given the swirling uncertainty and continued problems in Canada, this gain could prove temporary. For the most part, volatility will probably continue.
So, it’s still advisable to not be too aggressive with Canopy Growth Stock. But if you have a longer-term perspective on things, I think gradually building a position does make sense right now.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.