Canopy Growth (NASDAQ:CGC), one of the leading Canadian cannabis companies, returned over 54% in the past 12 months and hit a multi-year high of $56.50 in early February. But since then, CGC stock has trimmed most of its recent gains and year-to-date, it is up only 3%.
Shares are now at $25.50 and the market capitalization stands at $8.9 billion.
By comparison, the Cannabis ETF (NYSEARCA:THCX), a marijuana-themed exchange-traded fund, is up about 44% so far in 2021. In other words, CGC stock is far behind its peers.
The recent up moves in the pot space came as a result of the market expectation for federal legalization in the U.S., following the result of the presidential election in November 2020. Recent research led by Panagiotis Andrikopoulos of Coventry University in the U.K. suggests that prevailing sentiment regarding regulatory developments affect prices of cannabis stocks.
Given the recent pullback in price, investors now wonder whether June could prove to be an opportune time to invest in CGC stock. If you are not yet shareholder, you might want to wait for the price to decline even further. Here’s why.
How Recent Earnings Came
Canopy Growth announced financial results for the fourth quarter and fiscal year ending March 31. Net revenue of 148 million CAD in the fourth quarter represented an increase of 38% compared to the prior-year period. Net loss in Q4 was 617 million CAD, a 710 million CAD narrower loss compared to a year ago.
CFO Mike Lee cited:
Our cost savings program is on track to deliver $150-$200 million of savings within the next 18 months, and we remain committed to our path to profitability by the end of fiscal 2022, while continuing to invest in an organization that is focused on insights, innovation and gaining momentum in the U.S. market.
In response to a stagnant domestic market in Canada, Canopy’s management has been creative with its derivatives products. After Canada legalized cannabis derivatives as part of “Cannabis 2.0” in 2019, the company launched a wide range of products, including vapes, edibles, chocolates, beverages, and concentrates.
Meanwhile, Canopy’s U.S. cannabidiol (CBD) business has been gaining momentum. However, the company still has no clear path to profitability. In the past few years, Canadian cannabis companies have mostly focused on expansion at the expense of short-term profits, burning through a lot of cash in the process.
CGC stock’s price-sales ratio stands at 20.4, which high for a company that is still bleeding red quarter after quarter. Research by Jean-Philippe Weisskopf of EHL Hospitality Business & Hotel Management School, Switzerland, highlights, “A portfolio of cannabis stocks displays high volatilities and returns.” Therefore, investors should be ready to embrace more choppiness in pot names, including Canopy Growth.
The Bottom Line on CGC Stock
As we get ready to finish the first half of 2021, CGC stock is more appropriate for short-term speculation as opposed to a long-term investment. Although Canopy Growth shares have recently become cheaper, I would not yet rush to invest in the pot group.
For Canopy Growth shares to have a sustained rally that will potentially take them to $30 or even above, the pot group needs robust fundamental results soon. While long-term investors would like to see CGC stock go over the 30 level, traders are likely to keep the range between $22.5 and $27.50. Therefore, if you are not yet a shareholder, you might want to wait for a decline to $25 or less.
Finally, those readers who do not want to commit full capital to CGC stock might consider buying an ETF that provides exposure to marijuana shares. Examples include the AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS), the Amplify Seymour Cannabis ETF (NYSEARCA:CNBS), or the ETFMG Alternative Harvest ETF (NYSEARCA:MJ).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.