Since early 2019, Canopy Growth (NASDAQ:CGC) has suffered a grueling bear move. During this period, CGC stock has gone from $50 to just under $24. The market capitalization is now at $8.9 billion.
Of course, the whole industry has been under pressure. Just look at the poor performances of stocks like Tilray (NASDAQ:TLRY), Aurora Cannabis (NYSE:ACB), Cronos (NASDAQ:CRON), and Aphria (NASDAQ:APHA). They have all lost significant amounts of their values.
There have certainly been good reasons for all this. First of all, the cannabis sector had been bolstered by exuberant expectations and valuations got to unsustainable levels.
Next, the supply-demand situation in Canada got out of whack. There was simply too much production. It also did not help that the Canadian government was not proactive in dealing with black-market activities.
But despite all this, the fact is that things have been improving. Although, in terms of investing in the sector, it’s still probably best to focus on quality – such as CGC stock.
The most recent earnings report from CGC illustrates how the underlying business is improving nicely. Revenues soared by 77% on a year-over-year basis to 135.3 million CAD, which beat the Wall Street consensus of 117.2 million CAD.
A big part of the growth came from the Canadian market for recreational cannabis. The market share is now at an impressive 15.5%, up about 2% on a quarter-over-quarter basis. There were also gains of 1.9% in Ontario, which has the largest population in Canada.
Part of the success has been the aggressive rollout of retail operations. But CGC has also the advantage of a portfolio of compelling brands like Martha Stewart CBD, BioSteel, This Works, and Storz & Bickel. It helps that the company has a strategic relationship with Constellation Brands (NYSE:STZ), which is one of the world’s top players in the markets for beer and wine.
But the biggest potential catalyst for CGC stock is the massive U.S. market. Joe Biden’s win for the presidency will likely mean more favorable laws for the cannabis industry. He has made it clear that he does not want to incarcerate people for its use.
There is also wide-spread public approval for cannabis in America. According to a poll from the Pew Research Center, about 91% said that it should be legal for medical purposes and 59% for recreational use.
This sentiment has been borne out by the local results of the 2020 election. There was passage of ballots for legalization in states like Arizona, Mississippi, Montana, New Jersey and South Dakota. In all, there are 36 states that have similar measures. In light of this, there will be more pressure on the federal government to take action.
Keep in mind that CGC is well prepared to benefit. The company has been spending large resources in developing the right brands and distribution in the U.S. Another key has been purchase of 70% of the equity in Acreage Holdings (OTCMKTS:ACRGF). The company has an end-to-end platform in 15 states, covering cultivation, processing, dispensing and branding.
Bottom Line on CGC Stock
CGC has about $1.7 billion in the bank. So yes, the company has enough resources to pursue its U.S. strategy. CGC is also in a position to pick up assets at lower valuations. In fact, there is likely to be a major wave of consolidation in the next couple years.
Now the U.S. market will still take some time to get critical mass. But with the Canada picking up momentum – which is also the case with other countries across the globe – CGC stock could remain in the bull mode for some time.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.