The volatility for Canopy Growth Corp. (TSX:CGC) has finally come down, and long-term investors may be wondering if the stock is a buy on the recent dip. There’s no question that the company is the very well positioned to become a global leader in the emerging marijuana market. The management team is top notch and firing on all cylinders right now.
Canopy isn’t just a commodity play
Some believe that marijuana producers like Canopy are just your everyday commodity producers. While this may be true for many marijuana producers, this is definitely not the case for Canopy. The company is investing a lot of capital into R&D as well as branding.
In this regard, the company is more of a pharmaceutical play than a commodity play. Like with any pharmaceutical company, Canopy will experiment through trial and error to discover a new strain of marijuana. If the newly discovered strain is effective at treating specific ailments, then this new strain will be branded under Canopy’s brand, and a patent may be awarded.
Canopy’s fantastic management team is willing to invest a lot in branding. The company hopes to build a fantastic brand for itself that differentiates it from your typical marijuana producer. This will separate Canopy from its competition and could give the company the durable competitive advantage it needs to thrive in the fast-growing marijuana scene.
Is Canopy a safe investment right now?
There’s no question that Canopy will continue to grow at a ridiculous rate over the next few years. Marijuana sales have grown by leaps and bounds over the last year, and this momentum is expected to continue over the next few years as marijuana becomes legalized across Canada.
The stock is not for the faint of heart, as volatility is almost guaranteed to return this year. I would not recommend Canopy as a core holding, but if you’re looking for a speculative buy, then Canopy is definitely a very interesting pick.
The stock could double or triple this year depending on what kind of news is released. However, the stock could also lose half of its value or more over a very small time duration. The headline risk involved with Canopy is huge, and you should only invest in the company if you can afford to lose a majority of your investment.
There’s still a tonne of upside potential, but it might not be realized until after a nasty correction. If you decide to buy shares, make sure you buy it in increments in case the stock decides to take a sudden nosedive.
Stay smart. Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any stocks mentioned.