The entire cannabis industry is on fire. It might seem weird to see bullish cannabis activity during COVID-19. However, the virus caused the marijuana market to plummet back in February and March. In turn, investors saw unbelievably low prices and went pot stock shopping.
The initial recovery of the industry is understandable, considering the main goal is to buy low and sell high. However, most cannabis companies are announcing price-sensitive announcements. Just look at Aurora Cannabis’ (ACB)explosive growth off their recent acquisition and earnings. Today we are discussing why Canopy growth is surging and whether they are worth the investment.
Why are investors backing Canopy?
Canopy gained traction after Constellation Brands (NYSE: STZ) bought 18.9 million at the start of May. However, it was more so the reasoning behind Constellations top up that was wallet grabbing. Essentially, Constellations still believe in the long term growth of the industry, expects Canopy to be the industry captain, and holds new CEO David Klein in high regard. Ultimately, Constellations investment (buying another 5%) ignited the rally behind Canopy.
Also, Canopy recently rolled out its cannabis-infused to the Canadian markets. The cannabis giant instantly received positive feedback and strong consumer demand. Leading to CGC increasing supply. Thus, investors interpreted the roll out as a future revenue-generating announcement.
Canopy Growth Continues Its 2.0 Product Innovation Rollout With New Beverage, Chocolate and Vape Products Arriving In Market
Details here: https://t.co/Bk25B2DXba
Here's to #FutureGrowth pic.twitter.com/jvN0mLrMe8
— Canopy Growth (@CanopyGrowth) May 12, 2020
Furthermore, Canopy’s upcoming earnings webcast (29th April) is keeping the buying alive. Because we all know that positive earnings trigger a volcanic increase in cannabis stocks.
Also, Canopy, like most pot stocks, rose off the possibility that cannabis could treat COVID-19. Especially with scientists suggesting that cannabis could reduce the virus by 70-80%.
Canopy Growth to Webcast Fourth Quarter and Fiscal Year 2020 Earnings Conference Call on May 29, 2020
Details here: https://t.co/x3xjn4aE4J
Here's to #FutureGrowth pic.twitter.com/htLbMY8fyo
— Canopy Growth (@CanopyGrowth) May 22, 2020
Thus, all signs show a bullish direction. Hence the buying activity off no news today represents investors expecting the Canopy bull to keep charging on. Honestly, I agree with the speculative buyers. (I do not hold a position in canopy)
Is Canopy worth the investment?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Short answer: Yes, it could be an excellent long-term hold (opinion not advice).
When it comes to cannabis stocks, one of the biggest red lights is often legislation financials. Canopy’s earnings webcast this Friday should paint a clearer picture of the financial situation.
Yes, Canopy operates at a loss. However, its recent financials indicate the shipping sailing in the right direction.
- Revenue up 62%
- Net loss improves from -$374.6 million to -$124.2 million
Canopy is having a buying party, but I feel this will come to a temporary end in the imminent future. (opinion not advice) While humans are greedy, we should see investors begin to offload their gains from the cannabis giant. Causing a slight decline and a possible entry for opportunists. If I were investing in Canopy growth, I would get in this week, ride the momentum, then exit off a price-sensitive event (possibly earnings). (opinion advice) Once I exited, I would look for another entry during the cannabis correction (opinion not advice).
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick Mcloughlin, Senior Manager of YIG.
