Is Canopy Growth Stock a Buy in September?

Canopy Growth stock (TSX:WEED) has seen some major movement recently, with good news from the US boosting it further.

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edit Powder of Cannabis (Drugs), Analysis of Cannabis in laboratory.

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Canopy Growth (TSX:WEED), one of the pioneers in the cannabis industry, has witnessed a roller-coaster ride in its share prices since 2017. The Canadian cannabis giant’s stock was trading at all-time highs. Its value then dwindled to around $0.60 per share in recent times.

However, there’s renewed optimism among investors as Canopy Growth stock recently climbed to over $1 per share. In this article, we will delve into the reasons behind this recent turnaround. Plus, ponder whether it’s the right time to consider Canopy Growth stock as a buy.

Fall from grace

To understand Canopy Growth stock’s recent resurgence, we must first acknowledge the turbulence faced in the past few years. The cannabis industry, once hailed as the next big thing, experienced a significant downturn. This was partly due to regulatory hurdles, oversupply issues, and slower-than-expected market growth. This downturn severely impacted Canopy Growth, causing its share price to plummet from the heights it reached in 2017.

The company struggled with high expenses, regulatory uncertainties, and increasing competition in the cannabis market. Consequently, investors lost faith, and Canopy Growth’s stock price dwindled to a mere fraction of its former glory. But lately, there has been reason to climb back up.

The sale of its Hershey Facility

One significant development in Canopy Growth stock’s recent journey is the sale of its Hershey facility in Smiths Falls, Ontario. The sale was to chocolate maker Hershey Canada for approximately $53 million. The sale supported Canopy’s ongoing efforts to optimize its operations and strengthen its financial position. The Hershey facility, covering a substantial 700,000 square feet, had once served as Canopy Growth’s headquarters. It was a key site for the production of cannabis flower and edibles.

David Klein, Canopy’s Chief Executive, expressed his satisfaction with this deal, highlighting it would reduce costs and improve their financial health. As part of this move, Canopy Growth also announced a workforce reduction, affecting around 35% of its employees, totalling about 800 staff members.

Marijuana market improves in the U.S.

In the backdrop of Canopy Growth stock’s recent gains, the broader U.S. cannabis market has also witnessed a positive shift. U.S.-listed shares of marijuana companies surged by up to 7% in premarket trading following a significant recommendation from the Department of Health and Human Services. The department recommended the reclassification of marijuana as a lower-risk substance after an 11-month review.

Despite marijuana remaining illegal federally, nearly 40 U.S. states have legalized its use in various forms. This reclassification is seen as a crucial step toward wider legalization. Experts and industry insiders believe that moving cannabis off of Schedule 1 narcotics, where it is currently classified, is long overdue and a positive step.

However, it’s important to note that this reclassification may not completely address all the challenges faced by cannabis companies, such as banking and capital market access issues. The Secure and Fair Enforcement (SAFE) Banking Act, which could make banking services more accessible to the cannabis industry, has faced obstacles in the Senate, despite passing multiple times in the House.

Future outlook gains momentum

Looking ahead, the future seems promising for the global cannabis market. The increasing legalization of cannabis and growing acceptance of its medical applications are driving significant growth. A report from Statista projects that the global cannabis market’s revenue will reach a staggering $51.3 billion in 2023, with an expected annual growth rate of 14.95% from 2023 to 2028. This growth is forecasted to result in a market volume of $102.9 billion by 2028.

The cannabis market encompasses various products, including recreational cannabis, medical cannabis, and therapeutic cannabis. Different countries have different legal frameworks for these products, contributing to the market’s diverse landscape. And Canopy Growth stock’s recent resurgence in share price, coupled with positive developments in the U.S. cannabis market and the promising future outlook for the global cannabis industry, provides investors with reasons to consider the stock.

However, as with any investment decision, it’s crucial for investors to conduct thorough research and consider their risk tolerance before making any financial commitments. The cannabis industry remains dynamic, with regulatory changes and market shifts playing a significant role in shaping its trajectory.

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 Amy Legate-Wolfe has positions in Canopy Growth. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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