Why Canopy Growth Corp. (TSX:WEED) Has Much Higher Times Ahead!

Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) hasn’t had the opportunity to spread its wings yet. Here’s why the best has yet to come for Bruce Linton and company!

Now that legalization has come and gone, Canada will be under the international spotlight as just the second nation to have cannabis legalized at the federal level. There will surely be hiccups along the way, and as the appetite for speculation grows, we could see an elevated amount of volatility that’s comparable to the boom and bust phase of any given IPO.

Judgement day (the first round of quarterly results in a legal environment) is finally coming, and investors will either grow euphoric beyond belief or be left extremely disappointed. Given the bar has been set ridiculously high, the probability of disappointment and a crash is high, even for some of the most promising names in the space with the best positioning in the pre-legalization era.

At this juncture, investors need to realize that the stakes are the highest they’ve ever been, and that a “sell the news” scenario may end up happening whereby all marijuana investors end up losing their shirts in an instant. The short-term is indeed hazy, and although the opportunity to get rich quickly is present, so too is the risk of getting caught holding the bag as speculators of less-than-stellar character cash-out at the expense of many longer-term thinkers.

There’s no question that the short-term outlook in the marijuana market is horrifying. Unless you’re comfortable with Bitcoin levels of volatility, you’re probably going to be in for a shock as trading volumes skyrocket.

If you are willing to dollar-cost-average your way through the rough waters ahead, however, you may want to view the marijuana market from a longer-term perspective. In the first few years of legalization, there’s going to be plenty of regulatory measures in place. As for the specifics, that’s anybody’s guess, but in the first few years, I think it’s safe to say that promising recreational powerhouses like Canopy Growth (TSX: WEED)(NYSE:CGC) are going to enjoy less growth they would have if regulators weren’t so hesitant about enforcing “minimal branding” rules to avoid potential hiccups in the first phase of legalization.

Regulators don’t want minors smoking marijuana, but they really don’t want people to take the roads while high. That’s why you’ve probably seen many “don’t drive while high” commercials on television of late. Policing authorities are going to need a way to test cannabis intoxication, and there’ll need to be rules regarding when and where it’s appropriate to use CBD, the non-intoxicating cannabinoid found in marijuana.

Moreover, we’re likely to see a “paper bag” phase whereby all cannabis sold legally will be placed in a discrete paper bag with zero advertising or brand promotional materials.

How pot firms differentiate themselves?

The first legal marijuana purchase was made at the stroke of midnight in Newfoundland involved good-looking black metal-looking containers holding marijuana along with a very fashionable bag with a subtle “Tweed” logo on it. Canopy CEO Bruce Linton shook the hand of the first folks to buy cannabis legally, as Tweed hats were dispersed in the background.

The sale of branded swag will have the green light, and it appears that Canopy stayed within the guidelines, but I find it very intriguing that the company decided to go with high-quality packaging materials to get brand differentiation while simultaneously staying within the guidelines.

Quality collector tins, high-fashion bags, and promotional branded swag will get Canopy’s brand noticed in the very early stages, but with nothing else to get the company’s brand noticed, it’s likely that every other cannabis producer will be playing the same game with unique packaging (purple caps, collector tins, etc.), swag, and all other differentiation initiatives that’ll get producers noticed.

Canopy’s branding prowess can only go so far with such stringent rules in place. But over the course of the next five years and beyond, one has to think that regulators will drop rules in the next phase, as worries are gradually put to rest.

Bottom line

The elimination of the “minimal branding” rule will allow Canopy to unleash Snoop Dogg and the branding expertise of Bruce Linton and company. By this time, I suspect Canopy would have already scooped up every established recreational brand out there, so if you’re looking for a way to play the long game, I’d nibble away at Canopy on any dips!

Stay hungry. Stay Foolish.

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

More on Investing

man shops at grocery store
Dividend Stocks

Choice Properties Pays Monthly: Does the Yield Compensate for Higher Rates?

Choice’s yield deserves a closer look at cash after property spending and financing costs.

Read more »

Natural gas
Energy Stocks

A Perfect TFSA Stock: A 6.5% Payout Each Month

Peyto Exploration and Development is growing its dividend as natural gas fundamentals continue to improve.

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

Best Monthly Dividend Stocks on the TSX? My Top Picks for Today

Looking for monthly dividend income and an attractive growth profile? These two TSX stocks are my top picks today.

Read more »

A meter measures energy use.
Energy Stocks

Canadian Utilities vs. Hydro One: Which Dividend Stock Would I Hold for 15 Years?

A proposed merger changes the Canadian Utilities comparison, while Hydro One still requires price discipline.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 12

Rising natural gas prices could help TSX energy stocks extend their gains today, while falling oil, gold, and silver prices…

Read more »

pig shows concept of sustainable investing
Stocks for Beginners

How I’d Turn Quarterly Bank Dividends Into a Monthly Paycheque

Quarterly bank dividends can fund regular monthly transfers without choosing stocks for payment dates.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Energy Stocks

Retirees: How to Use Your TFSA to Earn an Average of $386 in Monthly Tax-Free Income

This TFSA strategy can help boost average returns while reducing risk.

Read more »

oil pumps at sunset
Dividend Stocks

Canadian Natural Resources vs. Suncor: The Dividend Stock to Own Through 2026

Let’s compare Canadian Natural Resources and Suncor Energy across their financial performance, dividend track records, growth prospects, and valuations to…

Read more »