Have Weed Stocks Replaced Bitcoin?

Lessons that Canopy Growth Corporation (TSX:WEED) can learn from cryptocurrencies

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A depiction of the cryptocurrency Bitcoin

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Investors are still finding it difficult to choose the best marijuana stock to invest in and include in their stock portfolios. Prior to the legalization of adult-use, recreational marijuana last October, the excitement reached a fever pitch. However, the enthusiasm died down so early. The weed stocks were blowing hot and cold.

Some market observers have begun comparing the interest in marijuana stocks with the bitcoin craze and other virtual currencies. The same pattern seems to be developing with marijuana stocks. The price range of bitcoin in January 2017 was US$800 – $1150. The price hit an all-time high of US$3,000 in June and bitcoin’s meteoric rise ensued.

The price of the digital asset zoomed past US$4,000 in August then climbed to a new record of US$5,000 the following month. By December, bitcoin was trading as high as US$17,900 — and then disaster struck. On December 22, the crypto lost one-third of its value in 24 hours, dropping to US$13,800. Cryptocurrency investors went into panic mode.

In less than two months, bitcoin was down 60% to US$6,200 on February 2018. As of this writing, bitcoin is trading at US$3,804.95. But the way things are going, the price of the flagship cryptocurrency could be moving toward US$1,500.

Striking similarities

Take the case of Canopy Growth Corporation (TSX:WEED)(NYSE:CGC) for example. The stock is considered as one of the top 5 marijuana stocks, if not the industry leader. The company has done an excellent job of preparing for the marijuana boom with the passing of the Cannabis Act or Bill C-46.

Canopy Growth is well-positioned to benefit from the wide range of emerging opportunities. The prospects are bright not only on the domestic front, but also the rest of the world. The stock rally began in mid-August, when the price jumped from $32.15 to $60 on August 27. The 86.62% climb was triggered by the US$4 billion investment by Constellation Brands Inc. in the marijuana producer.

Two days before Bill C-46 took effect, Canopy Growth popped to $73.75. But instead of a breakout, the stock went downhill from there. The price decline was unceasing and as of December 5, the stock price of Canopy Growth is at $37.51.

Major cannabis companies like Aurora Cannabis Inc and Cronos Group Inc $15.21 $12.95 exhibited the same behaviour two days before the enactment of the Cannabis Act. Aurora peaked at $15.07, but is currently priced at $621 while the CRON stock hit a high of $15.21 and is now at $12.95.

The difference is in the outlook

The irrational trading pattern demonstrated by the two asset classes might be similar, but the respective outlooks are different. The future of the cryptocurrency market is bleak given that the business model is not time-tested and lacking in fundamentals.

But for marijuana stocks, the problems of supply shortages and distribution glitches among others need to be resolved quickly for sales to pick up. Also, the medical uses of marijuana are far more important than crypto mining. The general populace should stand behind the marijuana companies and wait patiently for the stocks to deliver.


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 Christopher Liew has no position in any of the stocks mentioned.

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