The cannabis space has been a tough one for investors who try and trade the market. It’s extremely volatile and impossible to time, with minor news stories moving stocks large percentages.
The length of time it has taken for the industry to get on its feet and for a lot of the producers to start earning a profit have also been a bit of a shock to the market.
Although it seems like the industry is not for long-term value investors, I believe that’s exactly who would do best to own these companies.
It takes investors who will do the work to identify the best companies and their fair values, and then it takes the patience to hold them for when the industry will actually mature in the long term.
Canopy Growth has been the leader in the cannabis space since it was the first publicly traded cannabis stock in Canada. Since then, it has led the pack with the domestic acquisitions, foreign partnerships, major capex on research and development, deals with celebrities, and so on.
In the last few years since the stock began its incredible rise, some investors may have felt like they missed the bus. Now, however, after coming off its all-time high of $76, the company is the cheapest it’s been in a while, trading at the bottom of its 52-week low of about $33.
Stock price is cheap
This is the cheapest Canopy has been in over a year, and when you take into account its fair value has been rising and is much higher now that cannabis has been legalized, it looks as though Canopy could be at its biggest discount to fair value possibly since the company was founded.
Another sign that Canopy is an absolute steal at these prices is that the ousted CEO and founder of the company Bruce Linton continues to buy more shares. Linton was ousted by the board after it was clear the performance of the company (and lack of profitability) was not up to the board’s standards.
Linton, however, knows the company inside and out. He built it and ran it until his departure, and he is the primary person responsible for making all the deals and shaping the company. If he is willing to bet his personal money investing at these prices, it seems rather obvious that the company is undervalued.
Room for growth
Canopy, especially while still under Linton, made it clear that it sees world growth and growth in the medical sector to be the next big wave of changes. It has positioned itself well with a number of international deals, getting its foot in the door before big changes are implemented, which will bring big opportunities.
Another avenue for growth the company has is the numerous paths it could go down with respect to each of the deals it has with celebrities. Each partnership, such as the one with Snoop Dogg, provides Canopy with limitless opportunities. One simple partnership can open the opportunity for collaboration on dry bud, extract, edibles, clothing, accessories, and more.
Potential takeover target
Another positive for long-term investors is the potential for Canopy to be taken out, especially if it starts performing to the level a lot of investors initially expected.
Continued growth and domination of the industry in Canada will naturally push the stock price up, as retail investors pile into it, but if Canopy can truly show its dominance, a larger company, such as Constellation Brands, which owns 37% of the Canopy right now, may want to fully take it over. This would be huge for investors, as the premium Constellation would have to pay would be massive.
Canopy has a lot of catalysts going for it right now. The new direction of the company coupled with the ultra-low stock price and continued growth in the industry worldwide are all big reasons why the stock could easily double over the next year. For investors wanting to get into the cannabis space, there is no better time.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned.