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Is Canopy Growth a Top Marijuana Stock Play in 2020?

Is Canopy Growth a Top Marijuana Stock Play in 2020?The largest marijuana stock on earth will be reporting its Q4 and full-year financial results this Friday (5/27) and these results will undoubtedly have an impact on your other marijuana stock investments and the cannabis industry as a whole. Wall Street analysts expect Canopy Growth will announce $130 million CAD in sales, or a YoY growth of about 38%.

While these financial results will likely have an impact on this marijuana stock and the cannabis sector as a whole, let’s take a look at why we recommend buying or not buying this marijuana stock:

Canopy Growth: Watch for International Expansion, Inventory Issues, Cash Burn Corrections and More

Is Canopy Growth a Top Marijuana Stock Play in 2020?

Canopy Growth Corp. (CGC) is building a global, vertically integrated, cannabis production, distribution, and branding company. Although international sales only account for 15% of total sales, this is an essential segment which will dictate the rate of long term growth.

It is currently the biggest and strongest cannabis company in the industry, producing more cannabis than any rival, by nearly twice as much. However, as their financials clearly indicate, it’s prohibitively expensive to do so. CGC spending is far greater than its revenues. After Bruce Linton was fired, David Klein (of Constellation Brands) has taken over as CEO and promised to drastically reduce share-based compensation.

Why is revenue generation particularly important for cannabis companies?

In previous years, CGC produced much more product (flower) than they were able to sell. Some estimates put their inventory balance at over CAD $600 million. Recent cost-cutting measures from new CEO David Klein may help. These include lay-offs of roughly 500 employees and closing the doors on 3 grow sites, totaling 3 million square feet, including the permanent closure of Aldergrove and Delta greenhouses. 

Canopy Growth Marijuana

With such an abundance of inventory, it may not be such a big deal that they shuttered those grow sites after all. Be on the lookout for inventory growth when looking to invest in this marijuana stock as this will likely increase the chances for another writedown. 

Investors will also want to pay close attention to their quarterly cash burn. Canopy Growth is nowhere close to profitability anytime soon but, if David Klein can get a handle on the cash burn, this may have a positive impact on the value of this marijuana stock.

COVID-19 sell-offs during late February caused the stock price of CGC to plummet to $9.73/share, over half the price it was trading at in January. Interestingly enough, Constellation Brands (NYSE:STZ), Canopy’s main investor, has also experienced a significant price correction even though alcohol is usually insulated from stock recessions. The more CGC’s stock price falls, the more likely Constellation buys shares on the cheap. What an insurance policy to have.

Canopy has over $2 billion cash and investments now, enough to prop them up for a significant time. This is critical because their current price to sales is 17, way too high to act now. EV/Revenue is also too high (>9).

Is Canopy Growth a Top Marijuana Stock Play in 2020?

Is Canopy Growth a Top Marijuana Stock Play in 2020?

We’d recommend not acting at this moment but if the stock drops back to the $10-11 range let’s buy this one up before Constellation does.

About Canopy Growth Corp.

Canopy Growth Corp. engages in the production and sale of medical cannabis. The company offers a variety of products including oils and concentrates, softgel capsules, and hemp. It focuses on the treatment of chronic pain, seizures, muscle spasms, nausea, and loss of appetite. The company was founded by Bruce Linton on August 5, 2009, and is headquartered in Smith Falls, Canada.

Is Canopy Growth a Top Marijuana Stock Play in 2020?

About Cannin: Your Marijuana Investment Experts

About Cannin: Your Marijuana Investment ExpertsCannin is your trusted resource for information about marijuana and hemp stock investment opportunities. Our global team of experts evaluates all emerging marijuana and hemp stock investing opportunities. We aggregate hundreds of hours of research and provide tips on the best marijuana and hemp stock investments for 2020. We provide the latest marijuana investment and hemp investment news and analysis. 

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