1 Forgotten Weed Stock Could Make a Mighty Comeback in 2020

Investors dumped the Canopy Growth stock in 2019 because of its very disappointing performance. New catalysts, however, should help the most popular cannabis producer to make a mighty rebound in 2020.

| More on:

The marijuana boom was supposed to happen last year. Many were expecting Canopy Growth (TSX:WEED)(NYSE:CGC) to lead the advance. All eyes, including that of Constellation Brands, were on its founder and erstwhile CEO Bruce Linton.

The American alcoholic beverage giant has a $4 billion investment, or 38% stake in the world’s largest publicly traded cannabis company by market value. With mounting losses after the Q2 2019, the Constellation Brands-controlled board has had enough of Linton’s free-spending ways.

Falling out

The board of directors felt a leadership change was in order, and Linton had to go. In spite of his termination in early July 2019, Linton bought WEED shares, saying the change signals the right time to buy.

From $53.52 on July 3, 2019, the price fell by nearly 65% to $18.78 in mid-November. The value of the entire cannabis industry also collapsed.

Canopy Growth was without a permanent CEO throughout the period. Also, it was dealing with supply issues and was having problems selling cannabis products abroad. More seriously, the company was losing money at a rapid pace.

Right man for the job

The good news came on December 9, 2019. As soon as the company announced the hiring of a new CEO, the stock rose to $28.17. Constellation chose a senior executive to take over the helm. It now appears that Canopy Growth is taking the right track in 2020.

Constellations Brand’s CFO David Klein is the chosen one. He’s leaving his post to take the helm at Canopy Growth effective January 14, 2020. Based on the company’s press release, Klein is the right man for the job.

He brings extensive experience from the consumer-packaged-goods (CPG) and the beverage alcohol industry. He has experienced too operating in highly regulated markets in Canada, Europe, Mexico, and the U.S.

With Klein’s strong financial orientation, expect Canopy Growth to depart from Linton’s boldness and do more belt-tightening. Some analysts, however, are uneasy about the appointment. Klein is facing an acid test given that he has zero experience in the cannabis arena.

Right product mix

A significant catalyst for Canopy Growth to stage a major comeback in 2020 is the improving demand trends in the domestic market. Canada’s Cannabis 2.0 is a potential $2.7 billion industry. Consumers can choose from a variety of product mixes in the legal channel, including the popular edibles.

Expect more retail stores to open too. Canopy Growth is opening ten of its Tokyo Smoke dispensaries in the province of Ontario to widen its retail footprint. Another segment in the derivatives where the company would focus on and lead is cannabis-infused beverages.

Right timing

Canopy Growth is hoping the U.S. federal legalization of cannabis would happen this year. The launching of Fire & Free, a line of hemp-derived CBD products, is part of its pre-legalization expansion. If both components in the U.S. progress well, Canopy Growth’s sales should rise significantly.

Right direction

While Canopy Growth is one of the stocks to watch in 2020, don’t expect instant financial miracles. The catalysts for growth are present, beginning with a new man at the helm. Product margins should improve as cash burn declines. You can decide to buy the stock once the red flags go down.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »