Never Liked Canopy Growth Stock? Time for a Fresh Look

Canopy Growth stock (TSX:WEED) shares surged on Canadian legalization, yet today it’s at penny stock status. So why buy?

Pot stocks are a riskier investment

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Canopy Growth (TSX:WEED) used to be the “it” stock, as shares surged to almost $70 per share, falling and hitting those heights again, but only to sink further and further into penny stock status.

Now, investors continue to avoid Canopy Growth stock like the plague. Yet there may be reason to start giving the cannabis stock another look.

Canopy Growth stock is down 84% in the last year, it’s true. But in the last month, investor sentiment seems to be shifting. Investors perhaps may be wondering if at $0.54 per share, the stock had hit rock bottom.

Now, shares are up 18% since hitting those levels. Granted, that puts it at just $0.64 per share, but there are other reasons for investors to put this stock back on their watchlist.

The cannabis market is shrinking

This is a good thing. When the internet boom started in the early 2000s, everyone and their mother wanted to create an internet company of some kind or another. However, at the end of it all, only a few major companies came out on top. You likely follow them today, with Alphabet and Microsoft making the cut.

This could very well be the case with the cannabis market right now. After every person on the planet got into cannabis investing in some way or another, larger companies started to put the cash behind the investments. This meant making acquisitions and partnerships. One such company that did so was Canopy Growth stock.

Canopy went ahead and purchased numerous companies, and made deals that would make even Warren Buffett blush. Granted, now the company is paying for it, selling off production plants, decreasing research and development spending, and more.

But, does that mean it’s over for the stock?

Darkest before the dawn

If it’s darkest before the dawn, then dawn should clearly be coming for Canopy Growth stock sooner rather than later. There are now only a few major players, with Tilray being among them. And the key here is that Tilray stock and Canopy Growth stock have realized a pure cannabis play isn’t going to make them the money they need to thrive in the current market environment.

Instead, Canopy Growth stock and others have focused on partnerships and purchasing beverage brands. Tilray stock recently announced the eight Anhauser-Busch brands. For Canopy Growth stock’s part, its BioSteel business has been doing quite well, but it also has a partnership with Constellation Brands that is growing along the same lines.

But these are all supplemental forms of income until the cannabis creators can get into the true money. And that’s the global marijuana market, and United States legalization.

A waiting game

If you’re into cannabis stocks, you likely already know that cannabis legalization will likely lead to another surge in these stock prices. However, that doesn’t look to be happening any time in at least the very near future.

Decriminalization is already somewhat underway. However, whereas in Canada there can be federal legalization, it’s going to likely be up to states to choose whether to legalize recreational cannabis. Once all of them have, then a federal legalization of the substance could be provided.

Until that time, Canopy Growth stock may be in for fits and starts until it’s profitable once more. Further, it will have to prove that it has a clear path to profits for the future until cannabis becomes legal. Yet at $0.63 per share, investors can certainly afford to consider a stake in the stock once more. Especially if we’re nearing the dawn of a new bull market.

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has positions in Alphabet and Canopy Growth. The Motley Fool recommends Alphabet, Microsoft, and Tilray Brands. The Motley Fool has a disclosure policy.

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