It’s been a tough ride for investors in Canada’s pot stocks in 2018. After delivering a triple-digit gains last year, the nation’s top marijuana stocks faced an extreme volatility ahead of the planned legalization for marijuana’s recreational use.
But now that the last major hurdle has been removed following the Senate’s passage of the Bill C-45, also known as the Cannabis Act, Canada is all set to become the first developed world’s country to legalize the use of recreational pot.
For many investors, this is the time to review their pot holdings and make an educated decision which stock they should hold on to as these producers begin to sell their products in this new market and the market attention shifts to the execution.
As I have advised in my earlier columns, I think it makes sense to stick with the biggest names, which have the production capacity to meet a potential surge in demand as provinces and territories in Canada open up their markets.
Strong market position
Canopy is ideally positioned to take advantage of the anticipated demand boom from recreational pot users. What makes Canopy different from other producers is its market size, capacity to ramp up production, the diversification of its product offerings, and international reach.
Canopy currently operates weed growing facilities with over 2.4 million square feet of space. But the producer has been expanding its operations fast with a potential to manage more than 5 million square feet of production space by next year.
This spring, Canopy won a cultivation licence in British Columbia — the first of its two sites operating under the BC Tweed Joint Venture Inc. The licensing approval of the Aldergrove site, the largest federally licensed cannabis site in the world, covers over 400,000 square feet of space.
On the medical side, Canopy also maintains a strong position with about 30% of the market share. The company already has the most patients, and the biggest number of outlets in terms of provincial distribution. And the company is well positioned to distribute weed products for its heir partners as well.
In the most recent quarterly earnings report, Canopy’s sales more than doubled in the third quarter compared with a year ago, fueled by a significant jump in domestic sales as well as sales in the German medical market.
The bottom line
Trading at $41.46 a share at the time of writing, Canopy stock is up 28% this year. I don’t expect a major shift in the price pattern from here until investors see those favorable forecasts translating into higher earnings. That said, with its superior execution capabilities, Canopy is the best stock to bet on in the long run.
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 Haris Anwar has no position in any stocks mentioned.