After years of hype, pot stocks finally went
parabolic in mid-2018 after big money started to enter the space.
Some called the parabolic move higher in pot stocks a bubble.
Others called it an opportunity. The latter group was right. Turns
out, pot stocks aren’t Bitcoin 2.0. Instead, pot stocks have great
long term growth fundamentals, rooted mostly in the fact that
current trends imply that recreational cannabis will one day be as
big as (if not bigger than) the $500 billion-plus global alcoholic
beverage and tobacco markets.
At the head of the group is Canopy
Canopy is the unparalleled leader in the fully legal Canadian
cannabis market. They also have one of the largest production
footprints in the cannabis industry, a $4 billion investment from
Constellation Brands (NYSE:STZ) on
the balance sheet, and a deal in place to acquire big U.S. cannabis
company Acreage once cannabis becomes fully legal
in the U.S.
In other words, Canopy Growth is the runaway
leader in the global cannabis market, and projects to be the leader
of this potential $500 billion-plus industry in the future. That’s
why CGC stock is up 60% year-to-date, and 90% over the past
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But CGC stock has run into some turbulence
recently. Over the past three weeks, CGC stock has dropped nearly
20% off its late April all time highs.
Investors shouldn’t be concerned about this
weakness. Instead, they should embrace it. This weakness is nothing
more than an opportunity to accumulate a long-term winning stock at
a winning price. Why? There’s three big reasons why investors
shouldn’t sell Canopy Growth stock here. Those reasons are as
The first big reason not to sell CGC stock here
is that the headwinds which have sparked the sell-off aren’t all
that relevant — and they could reverse course pretty soon.
CGC stock didn’t fall in isolation. It dropped
alongside a market meltdown which was sparked by escalating trade
war tensions and a fresh round of tariffs. But none of this is all
that relevant to Canopy Growth, which is a Canada-based cannabis
company that gets most of its revenue from Canada and doesn’t have
much U.S-China trade risk or exposure. Thus, macro headwinds are
creating unnecessary weakness in Canopy stock.
Further, these headwinds could reverse course
soon. U.S. President Donald Trump has married himself to the stock
market, and this fresh round of tariffs has a grace period for
in-transit goods. That combination ultimately implies that the U.S.
wants to get a deal done soon. China does, too, since the entire
2019 rebound in their economy has been predicated on improving
trade conditions. As such, it’s fairly likely these two nations
reach a trade agreement fairly soon, in which case current macro
headwinds will soon turn into macro tailwinds, and the current
sell-off in CGC stock will turn into a rally.
The second reason not to sell CGC stock is that
concerns related to a Canadian cannabis market slowdown are
There have been some concerns that the Canadian
cannabis market is slowing. Those concerns stem from Canadian
cannabis company Cronos (NASDAQ:CRON)
reporting weaker-than-expected first-quarter numbers, as well as
new survey from Dalhousie University which implies
that enthusiasm for legal edibles isn’t all that high. There are
also some new licensing rules at play in the Canada
market which could exacerbate the ongoing supply shortage problem,
which has led to unimpressive cannabis sales ramp
in early 2019.
But, these are all near-term concerns. In the big
picture, young consumers globally like to smoke weed more than they like to drink alcohol, and that will
ultimately manifest itself into big demand globally. Sure, demand
may be fickle today, but that’s probably because the industry is so
new, consumers don’t know how to buy cannabis legally at scale, and
there are supply shortages everywhere. All these things will get
fixed over time. As they do, near-term headaches will turn into
long-term gains, and that will ultimately power CGC stock way
The third reason not to sell CGC stock is that
the stock’s biggest catalyst hasn’t even arrived yet.
In the cannabis world, the Canadian cannabis
market is small peanuts. Most analysts peg it as somewhere around a
$10 billion potential market. The golden goose here is the U.S.
cannabis market, which is pegged at a $100 billion potential
market, or roughly tenfold that of the Canadian market. Thus, all
these near-term concerns surrounding supply shortages in the
nascent Canadian cannabis market are really small in the big
In that big picture, it’s all about the U.S.
market, which Canopy is set to dominate thanks to its deal to
acquire Acreage upon legalization of cannabis in the U.S. That huge
catalyst hasn’t even arrived yet. Selling a stock before its big
catalyst has even arrived is short-sighted.
CGC stock has been a big winner over the past
year and in 2019 for a reason: this is a global cannabis company
that is in the first inning of a huge, long-term growth narrative
that could one day produce a $100 billion company.
Canopy stock has dropped over the past few weeks.
But nothing about that long term growth narrative has changed.
Consequently, investors should embrace recent weakness as an
opportunity add on the dip.
As of this writing, Luke Lango was long
The post 3 Reasons Not to Sell
Canopy Growth Stock appeared first on InvestorPlace.