Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

3 Reasons Investors Shouldn't Worry About Canopy Growth

By David Jagielski - Nov 23, 2019 at 3:00PM

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 edibles market could help turn things around for the struggling pot stock.

Canopy Growth ( CGC -3.16% ) recently released its latest quarterly results, which again failed to impress investors. And that's sent the stock into a bit of a roller-coaster ride this month. While there are some very good reasons for investors to be disappointed with the results, over the long term, the stock could still recover.

Below are three reasons investors shouldn't be worried about the stock -- for now, anyway.

1. The company still has a ton of cash on its books

One of the biggest concerns in the industry is that cannabis companies are burning through too much cash in their day-to-day operations. Over the past six months, Canopy Growth spent 359 million Canadian dollars to keep its operations running. That's well up from the CA$198 million it burned through a year ago. And while that's definitely concerning, the good news for investors is that the company still has a lot of cash. With CA$1.1 billion in cash and cash equivalents as of Sept. 30, Canopy Growth could withstand its current level of cash burn for well over a year. 

It also has more than CA$1.6 billion in marketable securities it could liquidate. And let's not forget that it could tap into Constellation Brands ( STZ -0.72% ), too, if things were to get difficult. Canopy Growth has access to some deep pockets, and unless the company's cash burn gets a whole lot worse, keeping the lights on isn't going to be an issue. That helps buy it time, especially with a new segment of the market opening up, which could lead to even more growth for Canopy.

Edible cannabis cookies and candies on a table

Image source: Getty Images.

2. The edibles market is just about to get started

Although edible and derivative cannabis products have technically been legalized in Canada in October, it won't be until mid-December that any of these products will actually be for sale. By partnering with Constellation Brands, Canopy Growth has given itself a big advantage over its peers, especially those that are going at it alone when it comes to cannabis-infused beverages. Having the Corona-maker's expertise to tap into, Canopy Growth certainly has better odds for success in the segment by partnering with a company that knows a thing or two about making a quality beverage.

But it isn't just beverages that will help grow sales for Canopy Growth. The company is expecting to have more than 50 products available for the new segment of the market, including other edible products and vapes as well. While it may take a while for the new segment to take off, and for Canopy Growth to reap the benefits of its new products, success in the edibles and vape markets could help the company get a lot closer to breaking even.

3. A mature company is guiding it

Another benefit of its partnership with Constellation Brands is that Canopy Growth has strong, experienced leadership that can help guide the company's operations. A big risk when it comes to investing in cannabis companies is that they're start-ups, so leadership can be crucial to the company's long-term success. Constellation Brands invested a lot of money into Canopy Growth, and the company has a lot of incentive to make sure the cannabis company's operations are running smoothly, and that includes focusing on profitability and being cash-flow positive.

Although that may result in Canopy Growth being a bit more conservative in its growth strategy, over the long term, having an experienced company like Constellation helping the marijuana stock could make its operations a lot more sustainable. And that will make Canopy Growth a much safer investment.

Key takeaways for investors

Canopy Growth is coming off a disappointing quarter, but with lots of cash and strong financial support, the company is not in a dire situation. It has time to fine-tune its operations as it continues to strive toward profitability. And with many new products on the way, the company's financials could look a whole lot different a year from now. While there's definitely a lot of risk involved in what's been a very volatile industry this year, Canopy Growth could be one of the safer marijuana stocks to hold over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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

Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$225.33 (-0.72%) $-1.64
Canopy Growth Stock Quote
Canopy Growth
$10.71 (-3.16%) $0.35

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2021.

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

Our Most Popular Articles

Premium Investing Services

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