There seems to be a never-ending flow of good news for cannabis producers these days. Glancing at the chart for Canopy Growth (TSX:WEED)(NYSE:CGC), we see hockey stick growth, reflecting insatiable buyers that show few signs of backing off soon.
Following such huge rallies, the pertinent question in the minds of investors stems from whether to add to or initiate a marijuana stock position now or hold off until the cannabis producers come through with positive earnings. In this veign, many want to know if Canopy Growth stock (TSX: WEED) still warrants a Buy rating after doubling recently.
Indicators of Growth
The key catalyst moving weed stocks higher recently is a resurging focus on Canadian cannabis players by global investors. The announcement by Constellation Brands last month that it will increase its stake in Canopy Growth, to the tune of an additional $3.8 billion. This translates to an increase of 28% ownership, moving up to 38% from 10% ownership in Canopy. Constellation Brands‘ portfolio includes beverage companies such as Corona.
In other deal news, Molson Coors Brewing made public their intention to develop new products via a JV (joint venture) with Hydropothecary. They plan to produce cannabis-infused beverages after the recreational cannabis market opens in 2019.
The main excitement here is that global brands, such as Constellation, are seeing a big global opportunity in pot trade, and they don’t want to be left behind.
“We think this is going to be a big business worldwide,” Constellation Brands chief operating officer Bill Newlands said, “this is not going to be limited to Canada. This will undoubtedly be a market that develops in the United States. It’s developing around the world in places like Germany and Australia and other markets.” In light of that, a much greater opportunity for the cannabis industry beyond Canadian borders exists. An increase in annual marijuana sales of $5 billion is predicted by some analysts following the commencement of Canada’s legal weed industry.
This investment by international players also validates higher valuations to this budding industry. Canopy, for example, has been trading at a steep 139.2 times trailing 12-month revenue. Constellation Brands put forward a 51% premium when increasing their share.
For investors seeking upside, a couple of quality marijuana stocks have proven to be a reliable diversifier. Of the well-known and large-cap names, Canopy is in a healthy position to bootstrap off of the anticipated growth stemming from both recreational and medical markets.
A differentiator for Canopy is its market size, ability to scale up production, the wide range of its product offerings, and its global reach. Nonetheless, investors would be wise to wait for the right buying signals to jump in after such an increase in Canopy’s stock price.