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Canopy Growth Corp.: Is it Safe to Buy After Mettrum’s Banned Pesticide Incident?

Canopy Growth Corp. (TSX:WEED) has been finding some positive momentum in 2017, and the company now has a market cap close to $2 billion. Is the company really worth that much? Many marijuana stocks have faced a ridiculous amount of volatility over the past year, and this has scared many long-term investors away.

The Foolish investor must realize that there’s a difference between volatility and risk. In the short term, volatility increases the amount of risk, but if you’re a long-term investor, you can use volatility in your favour by buying the stock in small amounts on any signs of weakness.

Canopy finally responded to the incident regarding Mettrum’s use of banned pesticides, and it appears the company has made changes to ensure such an occurrence won’t happen again. But is Canopy still a buy? Or are there better choices out there for weed investors?

The stock is a tug-of-war between the bulls like analysts at M Partners, who believe that Canopy is still undervalued at current levels and still has plenty room to run, and bears, who think that all marijuana stocks are at risk of crashing in the same way the high-flying tech stocks did in 1999.

Both of these possibilities could happen, but if the bubble were to pop, it would have been the perfect time for it during the November of last year, when all marijuana stocks were plummeting. Instead, all marijuana stocks rebounded because the emerging marijuana market still continues to show a lot of promise.

Once weed is legalized across Canada, we could really start to see stocks like Canopy skyrocket into the atmosphere, so there’s definitely a huge reward for shareholders who don’t mind taking on a bit more risk.

The aftermath of the Mettrum banned-pesticide incident

In a previous piece, I mentioned that Canopy could face some major turmoil over the Mettrum recall which resulted in $1 million worth of tainted marijuana being destroyed. Mettrum used a banned pesticide, and the staff actually made the effort to hide the pesticides in the ceiling tiles of the offices because they knew what they were doing was wrong.

Canopy recently made the announcement that the company made “numerous process and personnel changes, and will be followed by infrastructure modifications” at Mettrum. Canopy CEO Bruce Linton stated that the use of banned pesticides was “inexcusable” and that “a recall like this will never happen again.”

It’s great to see the appropriate changes are being made after this incident, but I still believe Canopy should have done its due diligence before the acquisition to ensure everything was operated in the proper way. Canopy has received a slight tarnish to its reputation in the very early stages. When combined with the fact that the company wasn’t able to keep up with the ridiculous demand for marijuana in the last quarter, I believe that Aphria Inc. (TSXV:APH) may have the opportunity to steal a huge piece of the pie that Canopy baked.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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