For the cannabis industry, 2019 was a tough year though most companies started it on an optimistic note. With the year coming to an end, the market is currently pinning hope on cannabis 2.0 products and the expansion of store networks to give the market a new lease of life.
While the marijuana boom continues to gather pace, several companies struggle with their piling up inventories, and Canopy Growth (NYSE: CGC) (TSX: WEED) is no exception. At the same time, the company has been building up its dried-flower inventory to monetize the growing demand for recreational cannabis in Canada. In the US, more states are legalizing pot-based products, which is expected to pick up pace in 2020.
Canopy growth might not be a wise investment option right now, despite the relatively low price and the market’s bullish outlook on the industry. Experts, in general, recommend hold, with a target price of around $25 that represents a 6% upside on the last closing price. The rating calls for patience on the part of investors while keeping a close watch on the stock for signs of retreat.
Meanwhile, investor confidence remains weak due to factors like the company’s dismal quarterly performance and lack of clarity on Constellation Brands’ (STZ) stake in it, especially after the recent appointment of Constellation executive David Klein as the CEO of Canopy Growth.
On the positive side, there is widespread optimism about Klein’s ability to take the company to the growth path. Moreover, the fact that Canopy Growth’s fundamentals are stronger than most of its rivals, including Tilray (TLRY) and Aurora Cannabis (ACB), makes it less risky. Its cash position is exceptionally good and far outweighs the liabilities.
In the second quarter, net loss missed the estimates amid cost escalation, though revenues more than doubled and topped the street view reflecting the strong marijuana harvest. Meanwhile, the loss narrowed to C$1.08 per share from last year’s C$1.52 per share loss. Though the outcome took a toll on the stock, it is certainly on the recovery path now.
Two months ago, Canopy Growth’s shares slipped a two-year low, continuing the downtrend that started about a year ago that dragged their value by about 25%. However, there are reasons to believe that the bottom is already in. The stock closed the last trading session sharply higher.