There is no dearth of good news for marijuana producers these days. Look at the stock price of Canopy Growth (TSX: WEED)(NYSE:CGC), the world’s largest cannabis company. It has almost doubled during the past three weeks, reflecting positive momentum that doesn’t seem to be slowing down anytime soon.
After such a massive rally, the biggest question for growth-seeking investors is whether they should buy marijuana stocks now or wait until these pot producers show some positive earnings. Let’s see if Canopy Growth stock is still a buy after surging more than 100% since August 14.
New growth catalyst
The major catalyst that is pushing pot stocks higher these days is the renewed interest by global players in Canada’s pot producers. Last month Constellation Brands announced it will boost its stake in Canopy by committing another $3.8 billion. Constellation, whose brands include Corona beer, will own 38% of Canopy, up from its earlier 10% stake.
In another deal, Molson Coors Brewing announced a plan to form a joint venture with Hydropothecary to develop new products, such as cannabis-infused beverages once that market opens in 2019.
The main excitement here is that global brands, such as Constellation, are seeing a big global opportunity in pot trade, and they don’t want to be left behind.
“We think this is going to be a big business worldwide,” Constellation Brands chief operating officer Bill Newlands said at the Barclays Consumer Staples Conference in Boston last week. “This is not going to be limited to Canada. This will undoubtedly be a market that develops in the United States. It’s developing around the world in places like Germany and Australia and other markets.”
If these predictions are true, then there is a much bigger opportunity for the marijuana industry beyond Canada, which is legalizing recreational pot next month, becoming the second country to do so after Uruguay. Some forecasters are predicting marijuana annual sales could jump up to $5 billion once Canada’s legal weed industry is fully operational
This validation by international players also justifies, to some extent, the high valuations that investors are attaching to this nascent industry. Canopy, for example, is trading at 139.2 times trailing 12-month revenue. Constellation paid 51% premium at the time of increasing its stake in Canopy last month.
Bottom line
For investors seeking high returns, buying a couple of quality marijuana stocks isn’t be a bad idea. Among the top names, Canopy is well positioned to take advantage of the anticipated demand boom from both recreational and medical markets.
What makes Canopy different from other producers is its market size, capacity to ramp up production, the diversification of its product offerings, and its international reach. That said, investors should wait for a right moment to jump in after such a big move in Canopy’s stock price.
