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Canopy Growth Corp. (TSX:WEED) Has 1 Durable Competitive Advantage Over Its Peers

When it comes to forecasting quarterly results for marijuana stocks, the wide spreads of analyst projections suggest that you’d be better off paying a monkey to throw darts at a board when it comes to estimating hits or misses for cannabis stocks on a quarter by quarter basis. With that in mind, speculating on cannabis stocks over the near-term requires one to be comfortable with pulling the handle of a slot machine.

While the broader basket of pot stocks are undeniably exposed to dangerous levels of unsystematic risk, the fact is that not all cannabis companies are built the same.

Some cannabis companies have less cannabis smoke clouding their future. So, for investors willing to put in the homework, subtle silhouettes can be recognized through the smoky horizon that lies ahead, and it’s these silhouettes that can serve as not-so-obvious breadcrumbs that can be pieced together to form a sounder investment thesis.

Mature cannabis companies like Canopy Growth (TSX:WEED)(NYSE:CGC) and Aurora Cannabis (TSX:ACB) have been around long enough such that an analyst is now able to judge the capabilities of management, an important trait when it comes to analyzing individual companies.

Funny accounting practices have made financial statements challenging to decipher, the economics of the marijuana market in a post-legalization remains a big unknown with a potentially disruptive black market, and frequent material headlines are making it impossible to time entries and exits. The competencies and capabilities of management, however, are less clouded by uncertainty, so investors who can spot the pioneers will be able to achieve the best risk-adjusted returns over the long haul.

We’re learning more about the captains steering each pot ship every day, and although we may not be able to see beyond the sea fog that’s ahead, as a prospective cannabis investor, you can choose your captain based on the track record and reputation that’s been built upon in the pre-legalization era.

Consider Canopy’s management team who’s made very smart, timely acquisitions that are relatively easy to digest. Canopy CEO Bruce Linton emphasizes the creation of long-term value, not “paying a dollar to get a dime” on massive multi-billion dollar acquisitions that stand to dilute shareholders severely.

Linton and company’s value and brand-oriented approach to M&A has resulted in a portfolio of recreational brands that are unmatched in the industry. The prices paid for such brands aren’t out-of-this-world relative to other deals going on in the space either, which leads me to believe that Canopy is the closest thing to a Berkshire Hathaway of the cannabis market.

An intelligent management with a value-conscious approach and a focus on bolstering premium brands is what you’re getting with Canopy, not a mere producer of a cash crop.

Moreover, Canopy’s management team also seems to know where the puck is going next, whether it’s through deals made in international markets or with acquisitions that bolster Canopy’s position in overlooked cannabis sub-industries (Canopy’s recent purchase of U.S. hemp researcher, Ebbu).

Foolish takeaway

If you don’t know where a ship’s headed, at least know your captain and his navigational skills. With an excellent steward like Canopy’s Linton, you’ll be able to feel somewhat more comfortable knowing that you’ve got an agile leader who can best-prepare for whatever storm lies ahead.

Given what we’ve seen thus far, I think Canopy’s stewardship is a notch above all other marijuana management teams in the space, and that Canopy should trade at a significant premium relative to its peers. Right now, Canopy’s market cap pretty much in-line with the pack, but over time, look for Canopy to pull ahead as its smart, long-term deals gradually begin to pay off.

Stay hungry. Stay Foolish.

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

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