What happened
Shares of Canadian marijuana grower Canopy Growth (CGC 1.92%) gained a whopping 82.3% in January, according to data from S&P Global Market Intelligence.
For some context, the S&P 500 (including dividends) returned 8% last month. Most of Canopy's peers also had great starts to 2019, with shares of Aurora Canabis, Cronos, and Aphria up 42.9%, 89.4%, and 53.6%, respectively.
Canopy Growth stock gained 13.6% last year as well. Thanks to its powerful start to 2019, shares are up 118% for the one-year period through Friday, Feb. 1, versus the S&P 500's 2.2% loss.
The biggest catalyst for Canopy stock's rise last month was the company's announcement that it plans to enter the U.S. cannabis market, thanks to the U.S.' legalization of industrial hemp. Image source: Getty Images.
So what
Canopy Growth stock probably got a tailwind last month from general robust market conditions, though we can largely attribute its strong January performance to several company-specific catalysts:
- Jan. 8 and 9: Canopy outlined its advantages in the hemp-derived cannabidiol (CBD) market. (CBD, which can be extracted from both marijuana and hemp, is a nonpsychoactive chemical that's been associated with a host of medicinal benefits.) The following day, Wall Street firm Piper Jaffray initiated coverage of the company's stock with an "outperform" rating. Shares soared 29.1% during the three-day period from Jan. 9 to Jan. 11.
- Jan. 9: Also on the ninth, Canopy announced that its wholly owned subsidiary Spectrum Cannabis, which is focused on international medical marijuana markets, entered Peru.
- Jan. 14: Canopy announced that it received a license from New York State to process and produce products derived from hemp. Its stock jumped 11.1%.
- Jan. 21: The company announced that Spectrum entered the U.K. and Poland markets. Shares didn't rise on this news, but it's included for completeness of Canopy's notable announcements last month.
- Jan. 25: Piper Jaffray raised its price target on Canopy Growth stock to $60 per share, up from its prior $40 target, citing in part the company's hemp strategy. Shares -- which had closed at $44.21 on Jan. 24 -- popped 9.7% to $48.48. (They closed at $48.88 on Feb. 1.)
Data by YCharts.
Expounding on the hemp license news, here's a snippet from Canopy's press release:
Canopy Growth will establish within the Hemp Industrial Park large-scale production capabilities focused on hemp extraction and product manufacturing within the United States. ... Depending on Board approval of a specific site, Canopy Growth intends to invest between $100 million USD and $150 million USD in its New York operations, capable of producing tons of hemp extract on an annual basis.
This move marks Canopy's entrance into the U.S. cannabis market. Canopy's path to enter this country's market was cleared by December's passage of the U.S. Farm Bill, which became effective on Jan. 1, 2019. The bill removed industrial hemp from the federal government's list of controlled substances, making it legal across the country to grow and process it and opening up a potentially massive market for hemp-derived CBD products.
Check out the latest Canopy Growth earnings call transcript.
Now what
Canopy Growth stock deserves a spot on your watchlist if you're an investor interested in gaining exposure to the cannabis space. By definition, that means you must be comfortable with volatility and risk, as the stock's valuation is sky-high and the company is losing tons of money.
One main reason to like the stock is Canopy's partnership with alcoholic beverage giant Constellation Brands (STZ +1.31%), which last fall invested a cool $4 billion in Canopy, increasing its ownership stake to 38%. Moreover, Canopy's hemp strategy could make it an early mover among the major players in the hemp-derived CBD market.
Investors who want a way to get some exposure to the cannabis sector that's lower in risk than investing in Canopy or another of the Canadian marijuana growers might want to further explore Constellation Brands. The two partners are working on developing CBD-infused beverages.
