Should investors expect volatility in Canopy Growth (CGC) stock headed into earnings?

: CGC | Canopy Growth Corporation  News, Ratings, and Charts

CGC – Canopy Growth’s upcoming earnings report will be important for the company and for the industry.

Broader markets received somewhat of a shock to the system in early May when President Trump announced that the U.S.-China trade dispute was far from being resolved any time soon. And many sectors have been choppy in the fast few weeks. One stock that has been in a downtrend since late April is Canada-based Canopy Growth (NYSE:CGC), a front-runner of the marijuana industry (MI).

As pot stocks are giving back some of their big gains from the last 12 months, it’s quite hard to predict which stocks in the industry will perform well in this volatile market. Canopy Growth Corporation (CGC - Get Rating) stock is expected to release Q4 fiscal 2019 earnings on June 20. Last quarter saw CGC’s earnings come in significantly below expectations. And the stock is seeing weakness after a strong start to the year. Now that the reporting season is fast approaching, let’s look at what may be next for the Canopy Growth stock price.

Long-Term Tailwinds for Canopy Growth Stock

As a diversified cannabis and hemp company, Canopy Growth is Canada’s largest pot stock by revenue and market cap. It started trading on the Toronto Stock Exchange(TSE) in August 2016 and got a dual listing at the New York Stock Exchange in May 2018.

The global legal marijuana market size is expected to be over $65 billion by the end of 2025. Yet at present, the legalized MI is still at its infancy in Canada and almost non-existent globally. In December 2018, marijuana producers and investors cheered when the U.S. legalized hemp and hemp-derived ingredient cannabidiol (CBD), the non-psychoactive ingredient of marijuana.

CBD is especially popular among consumers seeking relief from physical pain as many believe that CBD provides most of the health benefits of medical marijuana. Because hemp is now an ordinary agricultural commodity, Canopy Growth has obtained a license to process and produce hemp products in New York State.

Canopy Growth is hoping become one of the first marijuana producers to have its products in the U.S. market through its partnership with the NY state-headquartered alcoholic beverages giant Constellation Brands (NYSE:STZ) which has already invested $4 billion into Canopy Growth Corporation (CGC - Get Rating) stock.

The two companies are currently developing cannabis-infused beverages for Canada, where experts believe they will be legal by 2020. This legalization of edibles is likely to act as a powerful catalyst for the major cannabis companies.

Although it is too soon to predict how the legal hemp production in the U.S. will affect CGC’s bottom line, Canadian leaders like Canopy Growth are likely to become the first ones to be positively affected by major North American or global developments that may boost the sales and the use of recreational or medicinal marijuana. This, in turn, would also boost the stock price of CGC.

However, it will probably be several quarters before the U.S.-related investments would pay off and turn into profits.

Short-Term Headwinds for CGC

Many investors are worried that the initial hype surrounding the industry may possibly be decreasing. Therefore, CGC’s upcoming earnings report will be important not just for the company but also for the industry, as not everyone is convinced that Canadian recreational weed sales will remain strong.

And if CGC’s numbers do not come out as high as expected, then there would not be much momentum for Canopy Growth stock or the cash-intensive industry as a whole. Investors are beginning to get concerned about how increased spending is reducing earnings and cash flow numbers. So far, cannabis stocks have largely been driven by hype and publicity, such as the investment by Constellation Brands in CGC.

Indeed, many analysts are concerned that the valuations in this new consumer market are extremely high, that most of the cannabis stocks are going through cash fast and that many are not likely to achieve profitability in the near future.

Canopy Growth Corp. shares were trading at $42.71 per share on Tuesday morning, down $1.05 (-2.40%). Year-to-date, Canopy Growth Corporation (CGC - Get Rating) has gained 58.95%, versus a 16.43% rise in the benchmark S&P 500 index during the same period.

Canopy Growth Corporation (CGC - Get Rating) currently has a POWR Rating of D (Sell), and is ranked #61 of 207 stocks in the Medical – Pharmaceuticals category.









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