Why Now Might Be a Great Time to Buy Shares of Canopy Growth (TSX:WEED)

Canopy Growth Corp (TSX:WEED)(NYSE:CGC) has struggled so far this year, but now might be an excellent entry point for investors.

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The cannabis sector continues its descent into the abyss. Over the past few months, the largest marijuana firms have shed a staggering amount of their combined market value. Canopy Growth (TSX:WEED)(NYSE:CGC) has been one of the unfortunate leaders of this catastrophic performance. The largest pot company in the world has seen its share price decrease by more than 50% since mid-April. However, I believe now might be a great time to purchase shares of the marijuana giant, at least for those investors who are comfortable taking a little risk. Here is why.

A few dollars off its 52-week low

Marijuana companies started the year on fire, and there were at least three reasons for that. First, equity markets rebounded from their negative performance late last year. Second, various newly enacted laws — both in Canada and the U.S. — gave marijuana companies more leeway to conduct their operations. Third, the sector is projected to continue growing at a fast pace.

Some estimates claim that the legal marijuana market will be worth above $60 billion by 2025. Of course, we should always take such estimates with a grain of salt, but there is little doubt that pot companies present rare opportunities for courageous investors. The hype surrounding the marijuana market led to inflated stock prices. Investors were likely factoring the future success of many of these companies into their valuation models, and that is despite the fact that most of them aren’t consistently profitable yet. 

This performance wasn’t sustainable, though, and, to make matters worse, various scandals have put renewed pressure on cannabis companies. Perhaps the biggest one of them was the drama surrounding CannTrust Holdings.

As you are probably aware, the firm was caught growing weed illegally no less than two times, giving birth to an episode that sent shock waves throughout the entire industry. Poor financial performances on the part of several companies didn’t help either. As a result, many of the top pot firms — including Canopy — now find themselves just a few dollars short of their 52-week lows. This is an excellent potential buying opportunity for investors interested in entering the marijuana market. 

The launch of the derivative market

Canopy Growth still has its massive partnership with Constellation Brands to rely on. As a result of its deal with the beverage maker, the pot company has more cash than any of its competitors. This will allow Canopy Growth to invest heavily in growth initiatives to profit from the derivative market, which will become active in Canada very soon. Canopy plans to roll out cannabis-infused drinks — among other high-margin products — once this market opens.

Given Constellation Brands’s position in the beverage market, Canopy will have a distinct advantage over its competitors. With the recreational marijuana market stagnating a bit, Canopy’s investment in derivative products should give its revenues a nice boost. 

The bottom line

Struggles on the market are nothing new for Canopy. The company has seen its shares plunge by significant margins before. But the firm is now flirting with its 52-week lows, despite still being one of the better opportunities in the Canadian cannabis market. For those looking to jump aboard the cannabis ship and buy shares of Canopy Growth, now may be a great time to do so.

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 Prosper Junior Bakiny has no position in any of the stocks mentioned.

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