Is Canopy Growth Corp. Headed for Another Parabolic Surge?

Canopy Growth Corp. (TSX:WEED) is picking up speed again. Here’s what investors need to know as we inch closer toward legalization day.

Joey Frenette

Joey Frenette is a journalist, University of British Columbia graduate, ex-engineer, Warren Buffett fanatic, and Fool who's completed CFA Level 1. He’s been investing since 2014 and is always on the hunt for value, regardless of the market "weather." Before writing at The Motley Fool, Joey worked as an analyst/developer at several Canadian small- and mid-cap software firms, including Syscon and Avigilon. Beyond Motley Fool, Joey’s work can be found at TipRanks and InvestorPlace. Follow or send him a message on X (or Twitter) @realJoeFrenette

Published March 7, 2018 5:00 pm EST

Cannabis stocks are starting to heat up again, just weeks after the late January/February hangover that saw many pot stocks lose 30-40% of their value over just a few weeks. That hangover wiped out a majority of the Christmas gains that saw Canopy Growth Corp. (TSX:WEED) nearly double in just over a month’s time. With Canopy be poised to hit the NASDAQ exchange in the near future? Is it time to get back into pot stocks as momentum picks up, or could investors stand to get smoked come legalization day?

At these levels, Canopy remains my favourite pot stock, even amid government regulations that will dampen the company’s impressive portfolio of recreational and medical marijuana brands. Branding, promotions, and edibles are out of the question, at least for now, and that’s a tough pill to swallow for Canopy. As regulations ease, however, Canopy stands out as one of the few players that could control a huge portion of the Canadian legal marijuana scene.

Sadly, this means nothing to most of Canopy’s shareholders, as many weak-handed investors who are in it for the short-term gains couldn’t care less about the fundamentals or what could be in store once the nascent industry begins to mature. To them, it’s all about momentum, and the recent ~12% move could be indicative of the next parabolic upward move.

Momentum is in the air and it’s hard not to exhibit the FOMO mentality at these levels given that a NASDAQ listing could light a fire under Canopy’s stock as American speculators join the party. But before you bet the farm on Canopy, you should know that all marijuana stocks are essentially gambles at this point; thus, you could stand to lose a majority of your investment overnight. If you thought a parabolic upward was remarkable, just wait until the slightest of negative developments causes a panic that could potentially wipe out gains that took months to rally.

During such marijuana sell-offs, many discount brokerages may not be able to deal with sudden spikes in volume, and having Canopy on the NASDAQ could certainly exacerbate the panic levels should an unexpected negative development suddenly arise out of nowhere. Until then, however, pot firms will do everything to drive up their stocks in the short term, even though some may claim they’re in it for the long haul.