Please ensure Javascript is enabled for purposes of website accessibility

Why Canopy Growth Stock Jumped 16.5% in April

By Beth McKenna - May 5, 2019 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The top cannabis grower's stock continued its strong 2019 performance, thanks to a strategic move in the U.S. marijuana space.

What happened

Shares of leading Canadian marijuana grower Canopy Growth (CGC 5.01%) gained 16.5% in April, according to data from S&P Global Market Intelligence. The S&P 500 (including dividends) returned 4.1% last month.

Canopy shares are up a whopping 82.7% in 2019 through Friday, May 3, versus the S&P 500's 18.3% return over this period.

A take on the U.S. flag with black and white stripes and marijuana leaves on the black stripes and a large marijuana leaf where the stars usually are.

Image source: Getty Images.

So what

The primary catalyst for Canopy stock's rise last month was the company's announcement on April 18 that it was buying the rights to acquire Acreage Holdings (ACRGF), a U.S.-based cannabis producer. The deal involves Canopy paying $300 million up front for the right to acquire Acreage for $3.4 billion if and when the U.S. federal government legalizes marijuana.

"Today we announce a complex transaction with a simple objective. Our right to acquire Acreage secures our entrance strategy into the United States as soon as a federally permissible pathway exists," Canopy Co-CEO Bruce Linton said in the press release. 

While medical and/or recreational marijuana is legal in many U.S. states, Canopy can't currently enter those markets because the exchanges its stock are listed on (New York Stock Exchange, or NYSE, and Toronto Stock Exchange, or TSX) prohibit their listed companies from engaging in any enterprise that is illegal on a federal level.

CGC Chart

Data by YCharts.

Canopy stock's robust April performance is a continuation of the momentum shares have had all year:

CGC Chart

Data by YCharts.

Now what

If you're an investor who wants exposure to the fast-growing cannabis space, Canopy Growth stock should be on your watch list. The stock's valuation is sky-high, even for this sector, so you should have a long-term outlook since much growth is already priced in.

That said, Canopy has significant competitive advantages among the cannabis growers. It has a partnership with alcoholic beverage giant Constellation Brands (STZ -0.94%) and a huge cash pile, thanks to receiving $4 billion from Constellation last fall when the maker of Corona and Modelo beers increased its stake in Canopy to 38%. The two partners are working on developing cannabidiol (CBD)-infused beverages, which are expected to be legal in Canada later this year. (CBD, which can be extracted from both marijuana and hemp, is a nonpsychoactive chemical that's been associated with various medicinal benefits.)

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
CGC
$5.87 (5.01%) $0.28
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
STZ
$234.83 (-0.94%) $-2.22
Acreage Holdings, Inc. Stock Quote
Acreage Holdings, Inc.
ACRGF

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.