3 Reasons Canopy Growth Corp. May Outperform in 2017

Canopy Growth Corp. (TSX:CGC) had a bumpy ride in 2016. I’ll look ahead to 2017 and at a few things Canopy investors will need to monitor.

| More on:

Canopy Growth Corp. (TSX:CGC) had a fantastic, albeit bumpy, ride in 2016. The marijuana producer finished 2016 with a 200% stock appreciation since July, when the company was first listed on the TSX (it’s had an even more impressive increase since the beginning of 2016, when the company was listed on the venture exchange under TWD). I’ll be taking a look at three things Canopy investors should look for in 2017 to ensure continued rapid growth in the future.

More acquisitions

Canopy is a company with a lot of growth potential globally. The domestic Canadian market, while significant on a per-capita basis, is not sufficiently large to justify the growth in Canopy’s stock price in 2016.

Recent acquisitions and partnerships in Brazil, Australia, and Germany (and others) should pave the way for the company to breach the “learning curve” on M&A and partnership deals in the marijuana industry. As one of the largest marijuana producers in the world, Canopy stands to benefit from increased economies of scale gained by strategic, targeted investments around the world.

It remains to be seen how these partnerships and acquisitions will pan out, and investors will be looking to the performance of the deals Canopy completed in 2016 and in this new fiscal year.

Marijuana commodity prices

Marijuana (medical or otherwise) is transitioning from a vilified black-market good to a newfound valuable commodity. As marijuana begins to trade globally on a larger scale (currently, global trade in marijuana is very limited and restricted to only a few countries), investors will see prices move in more predictable patterns, likely resembling patterns exhibited by other major commodities such as oil, wheat, etc.

The movement in the global price for marijuana will become more important for companies such as Canopy, which are choosing to grow primarily through acquisitions and partnerships on a global scale. Investors in Canopy will need to monitor trends in the price for marijuana in the markets Canopy is operating in (and it looks like the number of markets may increase in 2017).

Industry growth and competition

As a relatively new industry, investors have been waiting to see how the current market participants and potentially new market entrants will shape the global market for marijuana. As the global pot industry grows due to the legalization or decriminalization of this new commodity, investors will likely see an influx of new entrants looking to capitalize on the profitability of the industry.

As competition grows and margins decrease toward a long-term industry average, the bigger concern for Canopy investors will be whether Canopy will be able to maintain its position as the market leader or secede some of its market share to burgeoning “growth” companies in this space.

In any case, this will be fun to watch.

Stay Foolish, my friends.

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 Chris MacDonald has no position in any stocks mentioned.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »