Canopy Growth Is the Definition of a Long-Term Investment

Despite getting a shot in the arm by Constellation Brands, CGC stock still faces a long road

When I last wrote about Canopy Growth (NYSE:CGC) in March, CGC stock was testing three-year lows. The reason for that was the novel coronavirus was forcing the company to close its corporate-owned Tokyo Smoke and Tweed stores.

Canopy Growth Is the Definition of a Long-Term Investment
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But those stores are now open again, at least for pick-up and delivery. And that means that Canopy will at least be able to post some sales as Canada begins the slow process of reopening.

Investing in cannabis stocks is like running a marathon. I believe there will be a payoff at the end, but it’s going to take a while to get there. And along the way, only the most determined are going to survive.

That brings me to another point I had made about Canopy in my last article. The company was rapidly burning through the cash it received from Constellation Brands (NYSE:STZ) in 2018. But that situation changed when Constellation increased its investment.

Understanding Constellation’s Vote of Confidence

Constellation CEO Bill Newlands cited three reasons for the company’s continuing investment in Canopy. The logic goes like this. The global cannabis market is expected to exceed $250 billion in the next 15 years. That means that cannabis could easily outpace the market that Constellation plays in today.

With that said, Constellation obviously believes that Canopy is going to be a major player in that market. In a statement, Newlands wrote that “Canopy is best positioned to win in the emerging cannabis space.” And one reason for that, of course, is the cannabis-infused beverages that Constellation has helped create.

And finally, and maybe most important, is Constellation is effectively steering the ship. Canopy’s new CEO, David Klein, is the former CFO of Constellation Brands.

The More Things Change, The More They Stay the Same

Few industries have had as difficult a time gaining traction as the cannabis industry. Ever since the stocks of major, and minor, cannabis companies went through the roof in 2018, it’s been one problem after another. The novel coronavirus that spawned the Covid-19 pandemic hit just as Canopy was beginning to recognize actual revenue from its Canadian operations.

Success in the Canadian market will go a long way to the ultimate goal of opening up the United States to both medicinal and recreational marijuana. The legal marijuana market is still very much in its infancy. And one of the reasons the training wheels are still on is because the United States is not open for business.

However, my InvestorPlace colleague Josh Enomoto referenced a study by the Pew Research Center that shows attitudes toward legalizing marijuana are changing. And since money talks, it’s not hard to imagine that once Canopy and other companies start showing a profit, political will may change.

Millennials Are Helping Prop Up CGC Stock

Canopy Growth is in the top 20 of most purchased stocks on Robinhood. Considering that millenials are the primary investors on the app, this is not surprising. This is a generation that is playing the long game when it comes to marijuana stocks. They are betting on a future where marijuana is legal. So, why not get in on the ground floor?

However, I should caution that as of this writing, Aurora Cannabis (NYSE:ACB) was tops on the list of Robinhood stocks. So, let’s not get carried away throwing bouquets. But it’s clear that this is a market that continues to believe in the marijuana story.

Be a Cannabis Realist When It Comes to CGC Stock

I consider myself to be a realist when it comes to cannabis stocks in general. I’m bullish on the long-term future of the industry. But I also know that thesis is premised on full legalization of the cannabis industry in the United States. I think CGC stock is a buy right now simply because it’s cheap and it probably has found a floor.

The continuing support of Constellation all but ensures that Canopy will be around on the other side of this pandemic. But in my opinion, investors hoping for meteoric growth in CGC stock during the second half of 2020 may be disappointed. Every cannabis company, Canopy included, is on a long road and there is no shortcut.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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