Cannabis stocks have a way of being red hot or ice cold. Leading the charge is Canopy Growth (NYSE:CGC), a name investors should have back on their radar. CGC stock has somewhat quietly rallied 29% so far this month, even with the stock’s two-day dip of 8.7%.
One thing investors have to understand about this group is volatility. Simply put, the cannabis stock are going to move big — in both directions.
However, volatility can be our friend when used as an opportunity. Will the election aid Canopy Growth? It seems to be trading that way, but even if that’s not the case, the trends are favorable for cannabis.
From both a recreational and medicinal point of view, there’s a growing acceptance for its role in society. Let’s take a closer look at this industry leader.
Cannabis Continues to Grow
It’s not a question of whether Canopy will be legalized. It’s justa question of when and how fast.
Recreational use of marijuana is legal in about 20% of the U.S., in 11 states as well as the District of Columbia. This November, Arizona, New Jersey, Montana and South Dakota are voting on whether to legalize cannabis for recreational use. South Dakota is also voting on whether to legalize it for medical use, along with Mississippi.
Obviously there are no guarantees, but by next week, 15 states could have legalized recreational use of marijuana and 35 could give the all clear for medical use. The latter excludes states that have legalized only CBD or CBD oils with trace amount of THC.
Lastly, of the four states voting on the recreational side, three of them — Montana, Arizona and New Jersey — are among the 33 states that have currently legalized cannabis for medicinal purposes. So for companies like Canopy Growth, there’s more at stake on November 3 than just the presidential election. If the industry sees multiple green lights, it should be a win for their businesses.
The presidential election is also key. If Democrats take control of the White House, it could accelerate cannabis legalization at the federal level. If that were to happen, that would be a boon for the industry.
That’s not saying that President Donald Trump is bad for cannabis — he could very well pivot and legalize. However, he’s been president for almost four years and it doesn’t appear to be a priority. In either capacity, cannabis could soon see a catalyst.
Breaking Down CGC Stock
After a bumpy couple of quarters, Canopy reported solid results in August. Both top- and bottom-line beats are helping to set a different tone at the company. Right at the top of the company’s press release, it reads: “Transformation strategy gains traction.”
Free cash flow, revenue and net losses all improved on a year-over-year basis. However, it’s not the financial position to be worried about.
While many cannabis companies are plagued by a weak balance sheet and iffy liabilities, CGC stock doesn’t carry the same concerns. Its balance sheet is in good standing and it’s got a deep-pocketed, successful investor with a significant stake. That investor is Constellation Brands (NYSE:STZ).
The financials need to keep improving, but it’s the business adaptions the company is taking. Check out some of these updates:
“Launched shopcanopy.com (“ShopCanopy”) ecommerce site in current quarter; ShopCanopy provides a one-stop shopping destination for the Company’s growing portfolio of CBD products in the U.S.”
“Final preparations underway for the launch of Martha Stewart branded health and wellness CBD products expected in the coming weeks.”
“Established leadership position in growing cannabis-infused beverage segment; shipping [shipped 1.2 million] cans to Canadian provinces since launch.”
These are the steps we want to see from a company looking to dominate the consumer market for cannabis. Will there be competition? Absolutely. But Canopy is building out the network it needs in the U.S. — aided significantly by its acquisition of Acreage Holdings — and has the products to win.
With a solid partner and strong financials, it can out-leverage most of its competition, as well.
Last but not least, the technicals continue to look good. While the stock has seen a big dip over the last few sessions, CGC stock has seen a nice run this month.
It’s pushed through its key moving averages and that stingy $18 level. As long as it can hold up over these areas — call it $16.60 to $18 — bulls will maintain control. Over $20.50, and shares can make a run toward $22 resistance.
A move below $16.60 does not mean CGC stock is dead, but it will mean it has lost short-term momentum. Over $22 and shares can make a push toward this year’s high near $26.