Can Canopy Growth (NYSE:CGC) break out over resistance? That’s what investors want to know now that Canopy Growth stock, Aphria (NYSE:APHA), and others cannabis stocks are beginning to find some upside momentum.
If this group can get buyers to return, then we could see some powerful moves across the board.
Cannabis and Coronavirus
The novel coronavirus caused a painful spill in the equity markets. However, many names have come roaring back to life. In some instances, like with the Nasdaq, these investments have gone on to hit new highs.
Cannabis stocks were starting to look better in the first quarter of 2020. That was after bottoming in Q4 and showing signs of moving higher. In any regard, cannabis stocks understandably sold off.
Many of these names have inferior balance sheets — thankfully CGC stock isn’t one of them — and have decelerating growth. In this case, names like Tilray (NASDAQ:TLRY) and Aurora Cannabis (NYSE:ACB) have struggled immensely.
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That’s even as some research suggests that cannabis sales held up fine during the coronavirus outbreak. In fact, some reports show that lockdown orders helped to accelerate cannabis sales. But that’s not the narrative.
Instead, shares declined in the coronavirus selloff as investors didn’t want to own stocks with shaky financials. Further, any cannabis legislation that was sitting on a governor or government official’s desk was pushed aside for Covid-19. Eventually these legislations will be addressed, but a delay is not a positive catalyst in the short-term.
Canopy Growth Stock Has Staying Power
On the plus side, Canopy Growth isn’t one of those stocks with shoddy financials.
The company boasts $2.56 billion in current assets and $6.8 billion in total assets. Those sums dominate current and total liabilities, which come in at just $420.5 million and $1.75 billion, respectively.
Admittedly, Canopy Growth is not profitable or free cash flow positive yet. So continuing operations will further erode its balance sheet over time. But that is true for virtually all of the industry at this point. In the case of CGC stock, its assets are large enough to buoy its business in the meantime.
It helps that it has Constellation Brands (NYSE:STZ) as its largest holder. At some point, the company could become the majority shareholder and that has helped to keep Canopy’s bank accounts adequately supplied. The company recently exercised its warrants to bring its total stake in Canopy up to 38.6%.
Bottom Line on Canopy Growth
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I like Canopy Growth, even though the industry has had trouble gaining some traction. This is the leading stock in this group, and when the sector catches some momentum, so too with CGC stock.
Canopy is making moves into the U.S., first sinking into the CBD market to drive U.S. sales. It will also be in position for if (and more likely when) cannabis becomes legal at the federal level.
The company has also shuffled up its management team, which should help turn the page to a more optimistic future. Obviously the coronavirus will come with its own headaches, but by and large, cannabis is being more widely accepted and that is a positive for the group over the long-term.
On the charts, CGC stock is starting to rotate over the $18.30 area. It’s also putting in a series of higher lows and maintaining over the 20-day and 50-day moving averages. If shares can clear this area and the 200-day moving average, the May highs near $22 could be in play.
What if shares don’t gain enough momentum to break out? In that case, technical traders will want to keep an eye on the $16.50 level. That’s where uptrend support (blue line) comes into play. However, if this level is lost, it also means that the 20-day and 50-day moving averages failed in supporting the stock.
That could put the July and June lows in play, at $15.57 and $15.32, respectively.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
