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Canopy Growth Stock Should Be Avoided in the Near-Term

Ian Cooper

Like most cannabis stocks, Canopy Growth (NYSE:CGC) had a poor outing in 2019. After peaking at $52.74 in late April 2019, CGC stock plummeted to a low of $13.81 by mid-November.

CGC Stock Should Be Avoided in the Near-Term

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However, thanks to a new CEO, Cannabis 2.0 and the advancement of the MORE Act in Congress, Canopy stock has shown strong signs of life. Furthermore, more states are just beginning to legalize cannabis use; Illinois, for example, just began recreational marijuana sales at the beginning of the year.

The best part? More than 40 states could allow some sort of legalization by the end of 2020 — including Mississippi, New York, New Jersey and South Dakota.

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Overall, since 2020 began, CGC stock has already run from a low of $19.02 to a high of $25.97 a share. However, even with plenty of strong cannabis catalysts, I’d still wait on the sidelines with Canopy stock.

Analysts Say It’s Time to Buy the Comeback, However…

There are plenty of reasons to like CGC stock. The company has a new CEO in David Klein, which Bank of America analyst Christopher Carey called “a clear win for Canopy” and “an important step in moving its leadership from visionaries … to operators.”

Furthermore, BMO Capital Markets’ analyst Tamy Chen just raised her rating on the stock to “Outperform” from “Market Perform” ahead of third-quarter earnings. She also raised her price target from $25 CAD to $40 CAD, and raised her revenue estimate from $102 million CAD to $108 million CAD.

“The timing of our upgrade is based on our view that at this point, even a modest beat in FQ3/20 results could begin to shift investor sentiment on the stock,” Chen said.

Despite Optimism, Investors Have Doubts About Near-Term Upside

Despite all the positives, though, there have been some questions about Canopy Growth.

The company was supposed to put 13 different drinks on shelves in January 2020 as part of Cannabis 2.0. However, that’s now been delayed, and could further erode confidence in the stock. So, while the company says the news won’t impact its 2020 revenue, it’s still “embarrassing and it does impact the company’s credibility.”

At the moment, Canopy doesn’t even know when it’ll launch — which tells me the company overpromised, under-delivered and got investors excited for nothing.

“Canopy has had seven weeks to work with THC in the brand new beverage facility to scale processes and IP it has developed in the R&D environment,” David Klein said. “In order to deliver products that meet our customer’s high standards we are electing to revise the launch date while we work through the final details.”

Sure, getting things right is important. But a move like this still erodes trust.

“[Friday’s] update will not help Canopy’s cause,” Jefferies’ analyst Owen Bennett said. Bennett also noted that Canopy already cut its sales forecast, and that he does not believe the company’s 40% gross margin target can be met.

The Bottom Line on CGC Stock

With a recent delay in its beverage launch, investors have become skeptical of CGC stock. Granted, it only had seven weeks to develop a new line. However, if that was the case, it shouldn’t have overpromised and under-delivered at the last minute.

In my opinion, it’s best to wait for the smoke to clear, and for clarity on a launch — or if we’ll see further delays. So, until we have specifics, look for cannabis opportunities elsewhere.

As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.

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