Investors Wonder if the Stench in Canopy Growth Shares Is Gone

The buzz is largely gone. And today’s situation whiffs more of bong water than anything worth sampling. Welcome to Canopy Growth (NYSE:CGC)? Let’s check in with what’s happened of late in CGC stock, then offer a risk-adjusted determination which will help investors avoid getting smoked.

Indoors marijuana growing, planting cannabis, holding it in a hand (canopy cgc stock)
Source: Shutterstock

Marijuana or cannabis stocks. They’ve got their man. Biden. They’ve got the seats. A Democrat majority in the U.S. Senate. States such as New York and Virginia are legalizing. At the same time, jittery neighboring states are likely feeling the burn to catch the green-powered revenue stream.

But for Canada’s and the market’s largest pot producer CGC, these are anything but high times.

CGC Stock and Enthusiasm

After storming higher by as much as 130% this year, CGC shares are up just 3%. At the same time, Canopy’s buoyant year-plus rally off last March’s Covid-induced bottom, which saw a gain of nearly 525%, has been chopped down by more than 55%!

So, what exactly is up or rather, going down in CGC stock?

For one, enthusiasm in early 2021 by investors expectant of federal level legalization of cannabis in the US for CGC and Canadian cannabis operators Aurora Cannabis (NYSE:ACB) and Tilray (NASDAQ:TLRY) has proven a disappointing slog. Maybe not at the government level, where change typically takes glacial-like time to happen. But it’s certainly the case for a market focused on short-term results and where a fiscal quarter is an eternity.

Not helping CGC’s situation, a spike in novel coronavirus cases inside Canada and fresh quarantine measures are also likely impacting the retail grow business within Canopy Growth’s own borders. And then there’s an unwanted and persistent trend in cheaper competing product and associated challenges from the black market that’s weighing on CGC.

Finally, there’s also smaller but first-mover U.S. based competition that can’t be dismissed. Curaleaf (OTCMKTS:CURLF) and Thumb Industries (OTCMKTS:GTBIF) are two operators enjoying the high-times and bringing home revenues in states where cannabis is legal.

Altogether, the operating environment has taken its toll on CGC stock. But there’s always tomorrow and the opportunity for better days ahead, right?

CGC Weekly Price Chart

Canopy Growth (CGC) deep in no man's land for CGC bulls

Source: Charts by TradingView

It’s not all bad news at CGC. The company does have its CBD business with products ranging from gummies and beverages to pet-based products helping chill Fido and other family members. There’s a deal to buy U.S. grow outfit Acreage Holdings (OTCMKTS:ACRHF). But those are still side shows to big picture, right? The CGC stock price chart certainly implies as much.

Aside from Canopy’s barely above water return this year, shares of CGC are demonstrating relative weakness compared to the broader market. It aforementioned competition CURLF and GTBIF shares are each up about 25%. And while even the best stocks do and should be expected to go through corrective periods, CGC stock’s decline in value has turned into a situation where buying on weakness isn’t recommended.

After moving strongly into the right side of CGC’s lifetime corrective base at February’s highs, today’s corrective cycle has broken beneath the 62% retracement level. Ideally and for trend-oriented investors looking to purchase a more ordinary bearish phase, buying shares nearer to the 38% Fibonacci support area with the expectation a resumption of the prior trend is nearby.

The Look of Unwanted Aftermath

But the deeper correction in Canopy has another strike against it.

The action leading into today’s weakness follows a doji decision candle formed in March and bearishly confirmed last month. Note the combined with a sickly-looking stochastics crossover and lack of any pattern price support developing. Even on the weekly time frame. Thus, CGC stock has the look of the unwanted aftermath of a good party.

For today, the recommendation is to keep at arm’s length from CGC. But if you have to be in it to win or already are, hedged protection using Canopy’s options market is seen as the only way to navigate CGC’s foul-looking waters.

On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100%  the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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