At What Price Is Canopy (TSX:WEED) Worth Buying?

The market value of the one-time pride of the cannabis industry has eroded over the last five months. As of this writing, Canopy Growth’s (TSX:WEED)(NYSE:CGC) market cap is $10.85 billion. If it falls below $10 billion, the company loses its large-market-cap status. If you were to invest in WEED, at what price should you buy it?

Canopy is facing a bumpy ride ahead. The pressure is on for management to maneuver the business, stop the bleeding, and endure the storm. Otherwise, the company would not be able to assume a dominant industry position.

New direction

The partnership with Constellation Brands was supposed to guarantee Canopy’s long-term success. But the alcoholic beverage giant has had enough of the previous CEO’s strategy of giving up profits in favour of massive investments in growth. The fiscal first-quarter net loss of $1.28 billion affirms Constellation’s disgust.

Canopy is struggling to become a sustainable, high-margin, and profitable business. However, Canopy’s interim CEO Mark Zekulin bared a two-pronged approach to achieve the objectives.

He said that Canopy would remain focused on laying the foundation for dominance in an emerging global opportunity. The game plan is to invest in developing intellectual property, build brands, build international reach, and ensure scaled production capability for current and future products.

The second approach is that Canopy would remain fixated on the process of evolving from builders to operators over the remainder of this fiscal year. With Constellation Brands running the show, Canopy is heading to further diversification.

Biggest loser

Canopy’s strategy doesn’t assure investors. Unlike before, people no longer bite whenever cannabis companies disclose plans. A newsflash won’t work to boost the stock anymore, especially if Canopy is the industry’s biggest loser as of August 2019.

Constellation Brands expects to book US$54 million in its second quarter of fiscal 2020 ending on Aug. 31, 2019, because of Canopy. But despite the considerable loss, Canopy’s significant shareholder is confident its high-profile investment will pay off in the future.

Within a month, Canopy’s market value dropped by 27.45% to its current level. The company continues to produce sub-par operating results with cannabis sales remaining flat. An inventory re-balancing led to more sales of low-margin cannabis products. Canopy’s high costs and low margins are red flags.

Canopy won’t be able to create inroads in the international markets until Canada resolves the supply problems. Canopy is also pinning its hope on the U.S. market with the acquisition of Acreage Holdings on a contingency basis. However, cannabis legalization at the federal level would come in about two to five years’ time.

Price forecast

Back in late April, WEED was trading at $69.90, or 55% higher than its current price of $31.18. One month after the firing of Bruce Linton as Canopy’s CEO on July 2, WEED fell by 18% to $43.22. A day after reporting a $1.2 billion quarterly loss, the stock sunk further to $36.41.

WEED is nearing its 52-week low, so don’t bet your marbles yet. You won’t lose any if you wait for the stock to post a new low. More likely, the industry’s bellwether could be the last among cannabis stocks to generate recurring profit.

You might be missing out on one of the biggest opportunities in Canadian investing history…

Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Besides making key partnerships with Facebook and Amazon, they’ve just made a game-changing deal with the Ontario government.

This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.

Learn More About This TSX Stock Now

More reading

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

Source: The Fool
At What Price Is Canopy (TSX:WEED) Worth Buying?
The Fool

The Motley Fool
Contributor at mjcanada.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related News