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Canopy Growth Corp.: Are There Any Puffs Left to Smoke?

The negative momentum continues for Canopy Growth Corp. (TSX:WEED) as impatient investors continue to dump the stock to the curb. Last year’s hot stock is looking like a discarded joint this year, and it looks like the marijuana party may be over for now. If you’re a value-conscious investor, would it make sense to start buying shares on the way down? Or is Canopy going to continue to fall off the cliff?

Canopy is now down over 37% from its February 2017 high, and the hangover has been quite brutal to investors who started buying shares this year. Some pundits believe that Canopy’s competitive edge will be its branding power, but I believe the marijuana producer that will come out on top will be the largest producer that is the most efficient.

It looks like Aurora Cannabis Inc. (TSXV:ACB) is a front-runner in this department with its ambitious Aurora Sky Project, which makes use of innovative technologies to increase plant yields. It’s very hard to say who will walk away the market leader, but one thing is for sure: you’re going to get stomach-churning volatility from any marijuana investment.

There are many reasons why Canopy is falling faster than its peers, but a big reason is the fact that Canopy was one of the first firms to the party. Canopy was one of the only ways to invest in the emerging marijuana industry, but now it is just one of many options to get in on the marijuana party.

Is Canopy a better investment now that it’s “cheaper”?

I warned investors that Canopy would experience an imminent crash triggered by a “banned pesticide scandal,” but many optimistic investors thought such a call was ridiculous. Canopy has been a tug-of-war between bulls and bears for a long time, and, finally, the bears took over, but how long will this last?

Canopy was an incredibly difficult stock to value at its high, and that remains true today as the stock falls below the $8 level. Marijuana stocks were a speculative gamble, and the shock from the banned pesticide scandal shook the entire industry and scared the optimism out of many investors.

Will the pain continue for Canopy and its peers? Most likely. There’s a lot of negative momentum, and you could get hurt by attempting to catch these falling knives. I don’t think legalization will cause weed stocks to rally, as it appears that long-term marijuana prices are set to decrease in the years following nationwide legalization.

If you’re a fearless contrarian investor who’s keen on getting some marijuana exposure, then your best bet would be to wait on the sidelines until the negative momentum subsides. Only then would I recommend picking up some shares using an incremental approach.

There are definitely many more puffs to be had from pot stocks, but now is not the time to go looking for them.

Stay smart. Stay hungry. Stay Foolish.

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

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