Canada Markets close in 1 hr 33 mins

Is This the Perfect Time to Buy Canopy Growth (TSX:WEED) Stock?

Vishesh Raisinghani
Jars of marijuana

Investing isn’t just about being right; it’s also about being right at the perfect time. In the early 90s you could have predicted that the rising crop of internet startups were likely to create trillions of dollars in value over their lifetime. However, if you’d invested in these companies right away, you would have probably lost all your money in the dot-com crash of 2001. 

A similar pattern seems to have emerged in Canada’s legal marijuana sector. Savvy investors who bet on legalization early in 2015 and 2016 were rewarded with unbelievable gains when marijuana was officially legalized in 2018. However, the sector failed to live up to expectations in 2019, and valuations came crashing down. 

Industry leader Canopy Growth (TSX:WEED)(NYSE:CGC) probably lost the most. The company’s stock price plunged nearly 70% between April and November 2019. That’s over $12 billion in market capitalization wiped off in fewer than eight months. The company also lost its founder and chief executive officer, while the board initiated a painful restructuring process. 

Canopy wasn’t alone. Many of the company’s top rivals also lost billions in market value and senior staff, as Canadian investors reassessed the true economic impact of legalizing the drug for consumers. Some high-profile names folded, while others trade at a fraction of their former valuation. 

It may be fair to say that the overall sentiment for the legal cannabis sector is as pessimistic as ever, which could mean that it’s the perfect time for investors to take another look under the hood and make some contrarian bets. I believe that industry leader Canopy Growth is probably undervalued for the first time in years. Here’s why. 

Market consolidation

A market correction culls the herd and reduces competitive pressures for the top players. Now that some cannabis producers have gone out of business and plenty of smaller companies face bankruptcy, industry leaders like Canopy Growth can grab more market share and consolidate their position. 

The company already controls roughly one-third of the domestic market, which puts it in a favourable position to dominate foreign markets as well. 

Edibles

In 2019, Canada legalized several new categories of cannabis products beyond the traditional buds and rolls. Now, producers can market edible products such as brownies and beverages like marijuana-infused beer. This move could effectively double or triple the market for cannabis, according to my Fool colleague Ryan Vanzo. 

I believe these new categories should be easier to brand, market and consume, leading to margin expansion for the top players. Canopy already has several well-established brands like Tweed and Tokyo Smoke along with celebrity partnerships with Seth Rogan and Drake that give the company a competitive edge in this arena. 

Resources

Perhaps the best reason to be optimistic about Canopy’s prospects is its unparalleled economic resources. The company has $2.28 billion in cash and cash equivalents and $15 in per share book value, while the market price is $30 per share. It’s also backed by the resources and distribution network of its parent company, Constellation Brands.  

Those resources dramatically increase Canopy’s chances of survival as the market drags itself through this painful consolidation period. 

Bottom line

With its brands, cash, and attractive valuation, it may be the perfect time to add Canopy Growth stock to your long-term growth portfolio. 

More reading

The Motley Fool recommends Constellation Brands. Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2020

  • Dow 15,000 very likely as coronavirus pandemic hits U.S. economy: strategist
    Finance
    Yahoo Finance

    Dow 15,000 very likely as coronavirus pandemic hits U.S. economy: strategist

    The coronavirus pandemic isn't done yet, bringing pressure to the stock market, pros say.

  • Banks were not prepared for flood of small business coronavirus loan applications
    Finance
    Yahoo Finance

    Banks were not prepared for flood of small business coronavirus loan applications

    Banks were supposed to start processing loan applications on Thursday at midnight from small businesses under the $349 billion Paycheck Protection Program, but they weren't prepared for the onslaught.

  • Feds to offer full-time work to all military reservists as part of COVID-19 response
    Finance
    The Canadian Press

    Feds to offer full-time work to all military reservists as part of COVID-19 response

    OTTAWA — The federal government is planning to offer full-time employment to all reservists in the Canadian Armed Forces until the end of the summer.The move is intended to make sure the military has enough troops should it be called upon to respond to COVID-19, a natural disaster such as a flood, or

  • U.S. Stocks Deepen Sell-Off After Jobs Report: Markets Wrap
    Finance
    Bloomberg

    U.S. Stocks Deepen Sell-Off After Jobs Report: Markets Wrap

    (Bloomberg) -- U.S. stocks extended declines and the dollar gained after a plunge in hiring last month hinted at the extent of the pandemic’s toll on the world’s largest economy. Oil rallied on expected output curbs.The S&P 500 fell for the third time in four days as investors digested the abysmal jobs

  • Small biz rescue off to slow start; some banks not ready
    Finance
    The Canadian Press

    Small biz rescue off to slow start; some banks not ready

    NEW YORK — The federal government's relief program for small businesses is off to a slow start Friday, with only some businesses able to apply and several banks either not accepting applications or seeing long waits to do approvals.Millions of small businesses are expected to apply for these desperately

  • Zentalis Pharmaceuticals Jumps in Debut After Expanded U.S. IPO
    Finance
    Bloomberg

    Zentalis Pharmaceuticals Jumps in Debut After Expanded U.S. IPO

    (Bloomberg) -- Zentalis Pharmaceuticals Inc., a clinical-stage cancer treatment developer, rose as much as 50% in its trading debut after raising about $165 million in an initial public offering.The company’s shares opened at $25.20 Friday, 40% above the $18 offer price. The shares were up 41% to $25.41

  • Ontario forecasts thousands of COVID-19 deaths even in best case
    Finance
    The Canadian Press

    Ontario forecasts thousands of COVID-19 deaths even in best case

    TORONTO — The death toll from COVID-19 in Ontario could be kept below 15,000 if stringent isolation measures aimed at curbing the pandemic prove effective, health authorities said on Friday as the military prepared to move into northern Quebec to help remote communities there cope.In a sobering presentation

  • Here's the difference between jobless claims and the unemployment rate
    Finance

    Here's the difference between jobless claims and the unemployment rate

    In the latest edition of Yahoo U, Yahoo Finance’s Brian Cheung joins the On The Move to break down the difference between jobless claims and the unemployment rate.

  • The Latest: Turkey extends movement ban to young people
    Finance
    The Canadian Press

    The Latest: Turkey extends movement ban to young people

    The Latest on the coronavirus pandemic. The new coronavirus causes mild or moderate symptoms for most people. For some, especially older adults and people with existing health problems, it can cause more severe illness or death.TOP OF THE HOUR:—Trudeau warns U.S. not to block 3M from sending respirators

  • US sheds most jobs in a decade, ending record hiring streak
    Finance
    The Canadian Press

    US sheds most jobs in a decade, ending record hiring streak

    WASHINGTON — A record-long streak of U.S. job growth ended suddenly in March after nearly a decade, as employers slashed hundreds of thousands of jobs because of the viral outbreak that has all but shut down the U.S. economy. The unemployment rate jumped to 4.4% from a 50-year low of 3.5%.The job loss

  • Designer Rebecca Minkoff's Female Founder Collective and UBS team up for next phase of Project Entrepreneur
    Finance

    Designer Rebecca Minkoff's Female Founder Collective and UBS team up for next phase of Project Entrepreneur

    Designer Rebecca Minkoff’s Female Founder Collective and UBS have teamed up for the next phase of Project Entrepreneur, aimed at accelerating and funding women-led businesses. Rebecca Minkoff joins Yahoo Finance’s On The Move panel to discuss the collaboration.

  • WHO Warns on Easing Limits; France’s Deadliest Day: Virus Update
    Finance
    Bloomberg

    WHO Warns on Easing Limits; France’s Deadliest Day: Virus Update

    (Bloomberg) -- The World Health Organization warned countries not to ease lockdowns too soon. France reported 588 new fatalities, marking its deadliest day since the outbreak began. Spain’s health minister said a projected slowdown of the contagion is within reach.Italy saw the number of new coronavirus

  • Raytheon CEO Sees 'Two-Year Tough Spell' Ahead Due to Virus Pandemic
    Finance
    Bloomberg

    Raytheon CEO Sees 'Two-Year Tough Spell' Ahead Due to Virus Pandemic

    Apr.03 -- Raytheon Chief Executive Officer Gregory Hayes says combining with United Technologies Corp. will create a "technology powerhouse" and that he is planning for a two-year "tough spell" because of the coronavirus epidemic. He speaks with Bloomberg's Taylor Riggs and Mike

  • 'Companies didn’t create this, they weren’t mismanaged... This was created by a virus:' Rep. Kevin McCarthy
    Finance
    Yahoo Finance Video

    'Companies didn’t create this, they weren’t mismanaged... This was created by a virus:' Rep. Kevin McCarthy

    Stocks drop drastically after unemployment hits 4.4%. House Minority Leader (R) California Rep. Kevin McCarthy addresses the latest job cuts numbers during the COVID-19 outbreak.

  • Finance
    Bloomberg

    Boris Johnson Is Still Ill and Isolating With Virus Fever

    (Bloomberg) -- U.K. Prime Minister Boris Johnson remains in isolation with a high temperature, more than a week after testing positive for coronavirus.Johnson made the announcement in a video posted on Twitter on Friday, as the latest official figures showed 3,605 people had died from the disease in

  • Food Supply Chain Slows Around the World on Trucking Bottlenecks
    Finance
    Bloomberg

    Food Supply Chain Slows Around the World on Trucking Bottlenecks

    (Bloomberg) -- Truckers hauling food are facing delays across the globe in the latest disruption to supply chains snarled by the coronavirus pandemic.They’re enduring lengthy wait times in Europe because of restrictions that have been imposed to control the virus’s spread. In South America, local laws

  • OPEC+ Urges Cuts to Stem Rout as Trump Meets U.S. Producers
    Finance
    Bloomberg

    OPEC+ Urges Cuts to Stem Rout as Trump Meets U.S. Producers

    (Bloomberg) -- The OPEC+ oil cartel is pressing to form a global coalition to cut output and stem the historic rout in crude prices, with a deal balancing on a key meeting later Friday between U.S. President Donald Trump and American oil executives. Crude surged on the efforts.Trump first touted the

  • Governor to take ventilators for NYC as hospitals buckle
    Finance
    The Canadian Press

    Governor to take ventilators for NYC as hospitals buckle

    NEW YORK — With coronavirus deaths surging in New York, the governor announced Friday he will use his authority to seize ventilators and protective gear from private hospitals and companies that aren’t using them, complaining that states are competing against each other for vital equipment in eBay-like

  • Putin Echoes Trump’s Call for Oil Producers to Cut Output
    Finance
    Bloomberg

    Putin Echoes Trump’s Call for Oil Producers to Cut Output

    (Bloomberg) -- Russian President Vladimir Putin said his country is prepared to take part in deep cuts in oil production together with Saudi Arabia and other major producers to halt the slide in prices, echoing an announcement by his U.S. counterpart Donald Trump.“We are ready to reach terms with partners

  • Finance
    Bloomberg

    Pelosi Pares Goals for New Stimulus Bill With Eye on Faster Help

    (Bloomberg) -- House Speaker Nancy Pelosi scaled back her ambitions for Congress‘s next coronavirus stimulus package to focus on additional direct payments to individuals and expanded loans to businesses, possibly leaving an $800 billion infrastructure plan and other Democratic priorities for a later

  • Finance
    Bloomberg

    Bank of America CEO Says Half a Million Customers Have Deferred Payments

    (Bloomberg) -- Half a million of Bank of America Corp.’s 66 million customers have deferred loan payments because of financial fallout from the coronavirus.“The idea is to defer the payment, defer the impact,” Chief Executive Officer Brian Moynihan said in an interview Friday on CNBC. “We’re working

  • Finance
    Bloomberg

    Citigroup Reaps $100 Million Windfall From Massive AAA CLO Trade

    (Bloomberg) -- Citigroup Inc. made more than $100 million trading a huge swath of the highest-rated collateralized loan obligations as market turmoil prompted asset managers in need of liquidity to unload securities at steep discounts.Citigroup bought roughly $2 billion of AAA rated CLO bonds in late

  • Trump Hosts Contentious Oil Meeting in Bid to Reverse Price Drop
    Finance
    Bloomberg

    Trump Hosts Contentious Oil Meeting in Bid to Reverse Price Drop

    (Bloomberg) -- President Donald Trump will convene an extraordinary gathering of the oil industry’s competing factions at the White House on Friday, as a global pandemic and oil-price war weigh on markets.Chief executives of the nation’s biggest refiners and producers are expected to discuss possible

  • Stocks fall on Wall Street, heading for another weekly loss
    Finance
    The Canadian Press

    Stocks fall on Wall Street, heading for another weekly loss

    NEW YORK — Stocks are falling in afternoon trading Friday, putting Wall Street on track for its third losing week in the last four.The losses came after the government said U.S. employers cut 701,000 more jobs than they added last month, the first drop in nearly a decade. Many businesses have screeched

  • Coronavirus pandemic spurs a chocolate and frozen pizza sales boom in America: Nestle USA CEO
    Finance
    Yahoo Finance

    Coronavirus pandemic spurs a chocolate and frozen pizza sales boom in America: Nestle USA CEO

    It's all about comforting chocolate while sitting home worried about the coronavirus.