Canopy Growth (TSX:WEED): Is the Next Stop for This Marijuana Stock $30?

Canopy Growth Corp (TSX:WEED)(NYSE:CGC) stock’s recent plunge may have more room to run. Find out why.

| More on:
question marks written reminders tickets

Image source: Getty Images

It has been quite a slippery slope for Canopy Growth (TSX:WEED)(NYSE:CGC) stock since late April. After hitting a record high that month, its shares have fallen more than 35% since then.

After a powerful rally during the early part of the year, the sell-off in marijuana sector has been drastic since April. Horizon Marijuana Life Sciences Index, for example, has fallen more than 25% since April 29.

So, what’s causing a sudden change in heart on the part of investors who have suddenly started to hate these market darlings? In my view, there are two main reasons behind the current sell-off.

First, there is still a considerable amount of uncertainty about the future outlook of marijuana producers. Investors were certainly not happy when Canopy Growth lost $323 million in the quarter ended March 31. This big loss prompted the company’s biggest shareholder, Constellation Brands, which owns about 36% of Canopy and holds a majority of its board seats, to ask the company’s CEO to leave.

After Canopy’s disappointing earnings, investors started to realize that they are probably expecting too much from these nascent players who are still working to put their act together. That collective thinking led to revaluation of weed stocks, thus prompting this massive sell-off.

Back-to-back setbacks

The other reason that made many investors think about their marijuana holdings after the Canadian regulator found out this month that CannTrust Holdings grew pot in unlicensed rooms and provided “false and misleading” information to inspectors. 

As its share plunged, CannTrust halted all sales and shipments of its products, and the Canadian government may suspend or even cancel its licence in response. The breach led to the firing of his CEO and erased almost $500 million in market value.

These two back-to-back setbacks have shattered investor confidence in the Canadian marijuana space, especially when achieving profitability is uncertain and many players are struggling to show that they have overcome the teething problems. 

Bottom line

I think this bearish spell will continue for weed stocks in the third quarter, as investors re-evaluate their risk and book profits after a massive rally of this year. If you plan to take an advantage of these beaten-down prices, stick with the big names such as Canopy Growth. The stock will come back sooner or later.

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 Haris Anwar has no position in the stocks mentioned in this report.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Coworkers standing near a wall
Cannabis Stocks

Why Is Everyone Talking About Canopy Growth Stock?

Canopy Growth stock (TSX:WEED) saw shares surge in the last two weeks for a variety of reasons investors can dig…

Read more »

Pot stocks are a riskier investment
Stocks for Beginners

Why Shares of Cannabis Stocks Are Rising This Week

Cannabis stocks received a boost this week as the White House urged the drug enforcement administration to reschedule the drug.

Read more »

A person holds a small glass jar of marijuana.
Stocks for Beginners

Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Is the Worst Over for Canopy Growth Stock?

Down 99% from all-time highs Canopy Growth stock has burnt investor wealth and remains a high-risk investment.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

2 Best Marijuana Stocks to Buy This Month

Marijuana stocks in the U.S. such as Green Thumb and Curaleaf can help you deliver outsized gains to investors in…

Read more »