On the anniversary of the first wave of cannabis legalization laws, the Canadian government will announce the legalization of further cannabis-related products. On October 17, 2019, Canada will legalize the sale of cannabis-infused edibles for recreational use. The legalization of weed edibles will have a major impact on the cannabis industry.
While the estimates are rough right now, it is expected that the market for cannabis-infused topicals, extracts, and edibles will be worth $27 billion a year. With great potential for serving a broader market, cannabis producers throughout Canada can capitalize on better margins. Will Cannabis 2.0 result in a change for the better in the industry?
Ahead of Cannabis 2.0, the largest marijuana producer in Canada, Canopy Growth (TSX:WEED)(NYSE:CGC), is gearing up to hold a market-leading position. The new wave of legalization is a growth opportunity, and it can allow the industry to deliver significant gains to investors who have a stake in them.
Let us take a look at Canopy to see whether you should consider buying and holding shares from the market-leading cannabis producer.
Troublesome year for cannabis companies
2019 has not been an easy year for the cannabis industry at large. 2018 saw millionaires made from early investors due to the legalization that took place a year ago. The situation changed soon after legalization, as pot producers failed to achieve profitability. The market-leading companies have not been able to deliver on a promising future.
Share prices in the cannabis industry took a 50% drop as 2019 progressed, and it has been struggling to recover ever since. Leading the charge was the largest marijuana company, Canopy Growth. Canopy continues to disappoint investors so far, and the recent losses incurred by the company have started to create a bit of panic.
You might be wondering why I am even talking about Canopy if everything seems to be going so wrong for the company. The reason why I feel Canopy could be a great stock to buy before Cannabis 2.0 is that the marijuana company has spent a lot of time, resources, and efforts towards Cannabis 2.0 preparation.
Ready for the new market
With the legalization taking place in just a few days from the time of writing, Canopy’s preemptive efforts are most likely to pay off. Canopy’s partnership with Constellation Brands, a large alcoholic beverage producer, makes the chances of Canopy resuming a leadership role in the post-Cannabis 2.0 era a strong possibility.
The cannabis producer has partnered with the beverage maker to produce cannabis-infused beverages. The market can expect Canopy to introduce several cannabis-infused beverages, including low-calorie and zero-calorie drinks.
The interim CEO at Canopy, Mark Zekulin, strongly believes that cannabis beverages will be able to cater to a much broader customer category and lead to a large number of sales. Canopy is not just focusing on cannabis beverages. The company plans to sell a variety of CBD products, including oils and edibles, later in the year.
Since April 29, 2019, Canopy shares are 40.25% down, and trading at $31.14 at the time of writing. I expect the stock to gain strong momentum as Cannabis 2.0 comes into effect, and the sales of cannabis-infused products pick up the pace. I feel that investors might be wary of cannabis stocks after seeing what happened following last year’s legalization.
The new wave of legalization, however, offers a better opportunity for marijuana companies to (finally) be able to turn a profit and deliver significant gains to investors.
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 Adam Othman has no position in any of the stocks mentioned.