I have always employed a strategy where I first uncover a growing mega-trend and then dive deeper to discover the companies that are leading the way within it. I believe this strategy works especially well in the booming legal marijuana industry, which is why I have placed my bet on Canopy Growth (CGC).
Based in Canada, CGC is currently the largest marijuana company in the world with a market capitalization of $5.8 billion. Its growth over the years has been both organic and the result of acquisitions.
In fact, Canopy has been adding to its staple of brands by purchasing smaller firms within the industry. The most recent acquisition was announced earlier this month when it bought Hiku Brands (DJACF), the owner of leading Canadian lifestyle brand Tokyo Smoke, for $205 million.
On the flipside, it’s worth noting that late last year Constellation Brands (STZ) invested $191 million in CGC for a 9.9% majority stake. For those of you who aren’t familiar with STZ, it is the company behind the Corona and Model beer brands as well as a bevy of liquor and wine brands. The deal made STZ the first of its kind to make a sizeable purchase in the hot marijuana sector.
Playing the Volatility for Long-Term Wealth
While CGC has business operations on several continents around the world, the biggest near-term opportunity here is the fact that the company is in prime position to capture a large portion of the Canadian recreational marijuana market once sales begin October.
And I also believe it will benefit as the United States moves toward legalization. I suspect medical marijuana will be federally legal in the next four to six years, and from there it will be only a matter of time before it is legalized recreationally. Other countries will follow Canada’s lead as well, and ultimately I think we will live in a world will marijuana is no longer an illegal drug.
As this shift happens, hundreds of billions of dollars in potential opportunity will open up, and there is a very good change that Canopy Growth will be one of the long-term leaders.
In the short term, it’s imperative that investors realize that marijuana stocks are extremely volatile. This is a group that falls victim to the news cycle. When there are headlines that highlight the industry’s positives, stocks move higher in tandem. On the other hand, when there is a lack of news the sector experiences some weakness.
We are in the latter part of that cycle now, which is why many marijuana stocks have weakened in recent weeks. However, this represents an opportunity to establish long-term positions at a discount. If you’re looking to invest in a company that will lead the trend for years to come, I certainly recommend taking a look at CGC.