- Canopy Growth Corp. (TSX:WEED) holds a prominent position in the Canadian cannabis industry, but is it a good stock to buy?
- Initially, the stock experienced remarkable growth, driven by the anticipation surrounding the legalization of recreational cannabis in Canada
- While some have assigned buy ratings, a consensus among analysts average out the stock as a “moderate sell”
- Canopy Growth opened more than 21 per cent lower on Wednesday at $0.79 per share
Canopy Growth Corp. (TSX:WEED) holds a prominent position in the Canadian cannabis industry, but is it a good stock to buy?
As the largest cannabis company in Canada, it has experienced significant growth in recent years. This article aims to assess Canopy Growth’s stock history, analyze its future performance, and explore the potential benefits and risks of investing in this cannabis giant.
Canopy Growth stock history
Canopy Growth has witnessed a turbulent ride in its stock history. Initially, the stock experienced remarkable growth, driven by the anticipation surrounding the legalization of recreational cannabis in Canada. As a result, Canopy’s share price peaked in late 2018, reaching an all-time high closing price of C$56.89.
However, after the peak, the stock faced significant corrections because of regulatory hurdles, slower-than-anticipated market growth, and company-specific challenges. This downward trajectory was further exacerbated by the market-wide crash caused by the COVID-19 pandemic. Canopy Growth has lately been trading around C$1 or less per share, where it has been since June 2023 and moving lower (aside from a brief September bump). This shows a clear need for investors to conduct some cautious evaluation before making a move.
Future performance
Despite the recent challenges, Canopy Growth shows immense potential for growth.
With the Canadian cannabis market still expected to expand, driven by increased legalization efforts and growing acceptance among consumers, Canopy Growth is well-positioned to capitalize on these opportunities. Its substantial market share, extensive production capacity, and strategic partnerships provide a solid foundation for growth.
The company’s international expansion should not be overlooked either. Canopy Growth has established a strong presence in several international markets, including Germany, the United Kingdom and Australia. This diversification can help mitigate potential risks associated with fluctuations in the Canadian market and provide additional growth avenues.
Potential benefits of Canopy Growth stock
1. Solid market position: Canopy Growth retains its position as the largest cannabis company in Canada, which provides it with a competitive advantage over its peers. This market leadership allows for economies of scale, increased brand recognition, and enhanced access to distribution channels.
2. Innovation and product portfolio: Canopy Growth has a robust research and development department that focuses on developing innovative cannabis products. By continually expanding its product portfolio, the company can cater to evolving consumer preferences and seize untapped market segments.
3. Strategic partnerships: Canopy Growth benefits from strategic partnerships with established players across various industries, including alcohol and pharmaceuticals. Such collaborations provide access to additional distribution networks, expertise and potential expansion into new markets.
Canopy Growth stock risks
1. Regulatory uncertainties: As the cannabis industry is heavily regulated, any changes in legislation or governmental policies can significantly impact Canopy Growth’s operations, revenue and market value. Shifting regulatory frameworks pose a substantial risk for cannabis companies.
2. Competitive threat: The cannabis industry is becoming increasingly crowded with new entrants. Canopy Growth faces competition from domestic and international players, which may constrain its market share and profitability.
3. Financial performance: Canopy Growth has yet to achieve sustained profitability. The company has incurred substantial losses in recent years, which raises concerns about its ability to generate positive cash flows in the short to medium term.
Analyst recommendations
It is important to consider the opinion of market analysts when evaluating Canopy Growth as an investment opportunity.
A consensus among analysts average out the stock as a “moderate sell.” The average price target, with a 9.43 per cent downside, is $0.80.
For example, Benchmark analyst Mike Hickey said Canopy Growth’s Q3 2023 results exposed “… severe cash flow deficits,” and decreasing revenues in its Canadian cannabis business. He added that its adjusted free cash flow deficit now amounts to 96 per cent of revenue in a sign of “[C]ritical cost management issues.” At the time, the company reported net revenue of $101 million, a 28 per cent decline from Q3 2022.
Classified as an underperformer, analysts have assessed Canopy Growth’s momentum as trending more than 84 per cent lower in the past year.
While some analysts have assigned buy ratings to the stock, it is crucial to note that these recommendations are subject to change and should not be considered as definite indicators of future performance.
For your consideration
The leadership team at the helm of Canopy Growth has been vocal about undergoing a “transformation” of its business to focus more on the medical side of cannabis. Some recent events that contributed to bumps in its share price include:
- August 2023: Canopy Growth stock jumps on sale of Hershey Drive facility
- September 2023: Canopy Growth stock surges on potential U.S. cannabis Banking Act vote
- November 2023: Canopy Growth completes sale of BioSteel sports drink business
That said, when the company released its bleak Q4 and fiscal year 2023 financial results, its share value tumbled further.
Canopy Growth investment summary
Canopy Growth Corp. demonstrates significant potential as a leading player in the Canadian cannabis industry. With its strong market position, international expansion, and product innovation capabilities, the company is well-positioned to capitalize on the growing cannabis market.
Even so, investors must carefully assess the risks associated with regulatory uncertainties, competition, and the company’s current financial performance. Canopy Growth clearly recognizes its performance isn’t where it should be as the team is working to “right the ship” where possible, but that doesn’t change the fact this is one of the riskier investments out there.
Investors should delve into deep due diligence and conduct thorough research and analysis before making any investment decisions.
About Canopy Growth
Canopy Growth is one of North America’s top cannabis and consumer packaged goods companies with a range of premium and mainstream brands under its belt, including Doja, 7ACRES, Tweed and Deep Space. Canopy Growth’s CPG portfolio features targeted 24-hour skincare and wellness solutions from This Works, gourmet wellness products by Martha Stewart CBD, and vaporizer technology made in Germany by Storz & Bickel.
Canopy Growth opened more than 21 per cent lower on Wednesday at $0.79 per share, and the stock has fallen 81.22 per cent in the past year.
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