Over the past three months, shares of Canada’s largest marijuana producer have been on a clear downward trajectory. While nothing exciting has recently hit the news, shares of Canopy Growth Corp. (TSX:WEED) have declined from $13 per share on February 13 to a current price closer to $8 per share. While investors holding for the past year have still made a positive return, the truth is, there may not be much room left for shares to run higher in the foreseeable future.
Although there has been very little news as of late, the past year has yielded a significant amount of positive news that has affected both the company and the industry. For starters, the legalization of the product across the country will open the market quite significantly. Currently serving the limited medical marijuana industry, the potential for revenue growth and earnings remains constrained.
With legalization coming in the foreseeable future, the new challenge faced by marijuana companies is the need to increase production facilities to deliver the product for all consumers wanting to buy it. Given the need for capital expenditures and long-term investment, investors may be gradually realizing that the investment they are holding will probably not yield very much over the next year or so. Instead, investors are choosing to deploy their investment dollars elsewhere in the hopes of achieving higher returns between now and the explosion in demand which is expected to follow legalization.
Looking at the technical indicators of the shares, the 200-day simple moving average (SMA) is currently acting as a support for the share price. The 10-day SMA is clearly trending downwards, while the 50-day SMA is weighing down the shares. Naturally, the 50-day SMA will take longer than the 10-day SMA to catch up to the share price after a large price movement.
Investors can learn the sentiment around the company and the industry by watching the technical indicators. With a share price currently trading under the 50-day SMA, the sentiment is negative. The 200-day SMA, however, which still includes data from before the major breakout in 2016, is creeping upwards and is sitting near the $8 mark.
With shares currently trading around that same $8 mark, investors may be on the verge of seeing either a possible resurgence or potentially a major fall in the stock’s value. For those afraid of large fluctuations in their investments, it may be a good idea to be cautious in the next few weeks as the 50-day SMA moves downwards and potentially crosses the 200-day SMA. When this happens, it is a known bearish signal to market technicians, and a sell-off often follows or speeds up.
With a lot of potential for higher revenues and profits down road, investors may have to be very patient before the next leg forward. Only time will tell.
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Fool contributor Ryan Goldsman has no position in any stocks mentioned.