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Why Canopy Growth Corp. (TSX:WEED) Stock Has Been So Volatile Lately

If you take a look at Canopy Growth’s (TSX:WEED)(NYSE:CGC) stock price chart over the last year, it looks like a roller coaster. Marijuana stocks have been very volatile recently, reacting strongly to any news, good or bad.

Canopy’s stock was on the rise at the end of last week but was down again at the beginning of the current week, and it’s finishing the week strong. Let’s review the news that caused Canopy’s stock price to be so volatile.

Cannabidiol to treat animal anxiety

On August 8, Canopy received approval from the Veterinary Drug Directorate of Health Canada to research the effectiveness of cannabidiol to treat animal anxiety. The stock rose 4.5% to $35.81 on that day and finished the week at $37.

Ontario announced a delay in private store sales

On Tuesday morning, shares of Canopy fell 5.7% after the government of Ontario announced it would allow recreational marijuana to be sold in private retail stores on April 1, almost six months later than expected. Customers will be able to buy cannabis online starting October 17, the day recreational sales become legal in Canada.

Strong revenue, but huge loss in first quarter

Canopy reported its fiscal 2019 first-quarter results after the close of markets on Tuesday.

Canopy reported a loss of $80.3 million, or $0.40 per share, for the quarter ended June 30, as the company continued to expand operations ahead of the legalization of recreational marijuana in Canada.

The world’s largest marijuana company reported a net loss of $90.9 million in its quarterly earnings compared with a loss of nearly $9.1 million, or $0.06 per share, a year ago.

Revenue for the first quarter totaled $25.9 million, up 63% from the same quarter a year earlier. Net loss and revenues were in line with analysts’ expectations.

“With our unparalleled success in Canada and Europe, Spectrum Cannabis’s expanding global operational footprint now covering 11 countries, our active regulatory and global market development efforts, as well as approvals to proceed with the first of many planned clinical trials of cannabis-based medical therapies for both humans and animals, our leadership position in international medical cannabis markets continues to strengthen,” said chairman and co-CEO Bruce Linton in a statement.

Canopy has secured the deepest channel into the Canadian recreational cannabis market, with an estimated 36% of the total supply committed to date to the provinces and territories.

Shares of Canopy closed down 8.2% in Toronto on Tuesday at $32.15.

Partnership with Constellation Brands

On Wednesday, news was released that caused Canopy and other pot stocks to skyrocket.

Indeed, we learned that Constellation Brands (NYSE:STZ), a global producer of alcoholic beverages, signed a deal to invest $5 billion in Canopy to increase its stake in the marijuana company to 38%. This is the largest strategic investment in the cannabis industry up to now.

Constellation Brands will make Canopy its exclusive global cannabis partner, and Canopy will use the cash to pursue its global expansion and increase production. This deal could be one of the most significant global growth opportunities in the next decade.

The investment follows a deal last year that saw Constellation acquire a nearly 10% stake in Canopy for $245 million and collaborate on the development of cannabis-infused beverages.

The Constellation deal follows other deals made by alcohol companies in the cannabis industry. On August 1, Molson Coors Canada entered a joint venture with Hydropothecary to develop non-alcoholic cannabis-infused drinks. In June, Lagunitas Brewing introduced a sparkling water infused with cannabis in California.

Canopy shares soared 30% at $41.82 in morning trading on Wednesday following the news.

More volatility is coming

As you can see, in only one week, Canopy’s shares have moved a lot. And you can still expect a great deal of volatility as we approach the legalization date.

If you don’t have a high tolerance for risk, I don’t think it is a good idea to invest a great amount of money in Canopy or in other pot stocks. You need to be able to tolerate a high level of volatility to invest in these stocks and be conscious of the downside risk. You shouldn’t invest more than you are ready to lose.

But if you want to buy pot stocks to profit from their huge potential, I believe Canopy is one of the best stocks. Canopy is less risky than other pot stocks since it is larger and more global.

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 Stephanie Bedard-Chateauneuf owns shares of Canopy Growth and THE HYDROPOTHECARY CORPORATION. The Motley Fool owns shares of Molson Coors Brewing.

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