Canopy Jumps 32% in 2 Weeks: Time to Buy?

Canopy Growth Corp (WEED, CGC) is the undisputed king of the global cannabis industry.

The Canadian juggernaut is the largest cannabis company in the world with a market cap of more than $8 billion and, in 2018, landed a $4 billion investment from Constellation Brands (STZ), one of the largest alcohol distributors in the world.

Despite the impressive resume, Canopy struggled in 2019.

After charging higher in 2016, 2017 and 2018 – Canopy shares fell 35% in 2019.

Those declines were driven by a few factors.

  • Canada’s legal cannabis industry got off to a slower than expected start in 2019. Sales fell short of expectations as the industry struggled with high taxes and over-regulation.
  • In the US, the vaping crisis took another big bite out of the sector as investors worried about the impact on cannabis sales and regulations.

However, this decline in Canopy also created a rare opportunity. In the first weeks of 2020, Canopy was the most oversold it had ever been.

Traders and investors obviously noticed because shares of Canopy have been on fire in 2020.

  • Canopy shares are up 71% from the 52-week low in mid-November.
  • Canopy shares are up 32% in 2020.

This big move higher looks like the beginning of a trend reversal – it looks like Canopy is moving out of a bear market and moving into a new bull market.

Looking forward, I expect a big year from Canopy. In addition to the promising chart formation, I also see three profit triggers directly on the horizon.

3 Profit Triggers I Expect to Drive Shares of Canopy Higher

The Canadian Cannabis Market Should Double in Size in 2020

When Canada legalized recreational cannabis in October of 2018 it only went halfway – only legalizing flower, also known as buds. That excluded all cannabis extracts such as edibles, vapes, and beverages. This was a big problem for industry sales because extracts are among the fastest-growing products in the cannabis market. That problem has been solved. Cannabis extracts became legal in December and sales started rolling in this year. Analysts are predicting this should double the size of the Canadian cannabis market.

Ontario Set to Open Hundreds of New Cannabis Dispensaries in 2020

Ontario is the largest province in Canada with a population of 15 million. Despite the huge population, Ontario has been very strict about letting cannabis companies open new dispensaries. At the end of 2019, only 50 dispensaries had opened in Ontario – an average of one dispensary for every 300,000 residents. Ontario has recognized that it needs to allow more dispensaries to open and will let cannabis companies open hundreds of new dispensaries in 2020. Those new outlets should provide a huge boost in sales.

Canopy’s New CEO Started on January 14

Canopy fired founder and long-time CEO Bruce Linton last summer. Canopy’s CEO position remained unfilled all the way until mid-December – when Canopy announced Constellation’s CFO would take the role.

Filling the CEO position is a big catalyst for two reasons.

  • Canopy once again has a leader.
  • As a former CFO, the new CEO will be looking to sharpen Canopy’s operating results and financial reporting. That should help Canopy improve profitability and earnings in 2020.

The Big Picture on Canopy Growth Corp

After a tough 2019, Canopy is off to a hot start in 2020 – up 32% in the first two weeks of the year.

Despite the impressive start, I see more gains ahead because of three powerful profit triggers. I expect to see plenty of volatility, but 2020 is setting up to be a strong rebound year for Canopy and the broader cannabis sector.

About the Author

Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.