The Bullish Argument Canopy Growth (CGC)
The marijuana story is growing like a weed.
With Canadian legalization in the pocket, U.S. states legalizing, supply issues, and interest from the corporate world, this could very well be the Gold Rush story of 2019. Plus, supply issues are plaguing the industry, creating sizable opportunity.
For example, months after Canada legalized cannabis, the country is running low.
In fact, Aurora Cannabis Inc. CEO Terry Booth says he “loses sleep” over the industry’s ability to supply the global market. “It will be at least five years until we have an oversupply situation,” he said, as quoted by The Financial Post.
However, this is nothing new. Canada has been struggling with cannabis shortages since recreational cannabis was approved in October 2018. Provinces, which control the distribution and sales of cannabis just aren’t seeing enough product from producers to meet demand.
Better yet, according to Arcview Market Research and BDS Analytics, global marijuana sales are expected o rise by 38% to $16.9 billion in 2019. By 2022, we could see $31 billion in sales.
Altogether, it’s creating one of the biggest booms we’ve seen in quite some time.
No wonder investors are flocking to marijuana stocks, like Canopy Growth [NYSE:CGC].
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While CGC did post a loss of C$0.38, as compared to expectations for a loss of C$0.16, investors are already drooling over the company’s net sales of C$83 million ($625 million) – a 283% jump year over year from C$21.7 million. Analysts had only anticipated C$81.1 million, almost $2 lower than expected.
That’s only like to grow with further legalization and an incredible amount of likely demand.
Plus, the company quadrupled its sales volume, which soared to 10,100 kg. year over year from 2,330. "Our successful first full quarter with recreational sales in Canada reinforces our long-held strategy of making meaningful investments early in order to secure market share,” according to co-CEO Bruce Linton.
We must also consider that Canopy’s U.S. growth strategy is on track.
Most recently, the company announced it would make a significant investment of $100 million and $150 million to create a large-scale hemp production facility in New York over the next 100 days. It’s currently looking at sites in the Southern Tier of the state, notes Bloomberg.
But that’s just the start. According to Linton, by the fourth quarter, there will be a “lot more stores” and “a lot more products in the Canadian recreational market. He’s also anticipating for Canopy Growth to “dominate” the market, as well.
Better yet, Canopy expects to have hemp products on the market by the end of 2019, and expects to enter the U.S. cannabis market “sooner than later.”
Going forward, the company also expects to ink new supply agreements with multiple companies to extract greater quantities of cannabis oil; complete key growing facilities that have been under construction; and explore new opportunities related to cannabis growth techniques.
After some profit taking around $60 a share, Canopy Growth looks to re-challenge those highs again shortly. With sizable growth ahead, we wouldn’t be surprised to see the stock break well above double top resistance and run to $80 a share.
No wonder investors sent the stock screaming higher.
With so many opportunities ahead, smart investors can clearly see the potential that a stock like Canopy Growth has in 2019.
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