Weed giant Canopy Growth (NYSE:CGC) was on the verge of achieving a leading position in the Canadian cannabis industry when the COVID-19 pandemic struck, forcing many of its retail stores to close. As a result, its stock plummeted, falling by 18% since the beginning of the year, compared to the S&P 500's gain of 4%.

As the U.S. and Canadian economies reopen, however, it turns out the impact on Canopy Growth's bottom line may be far less than what investors had imagined. In the first quarter of 2021, the company continued its streak of revenue growth and managed to narrow its operating losses. For these reasons, let's look at why Canopy Growth is the top pot stock to buy now.

Jar of medical cream beside small bottle of CBD oil.

Image Source: Getty Images.

A great quarter, despite the coronavirus

In Q1, Canopy Growth's revenue increased by 22% compared with last year, to 100 million Canadian dollars. At the same time, its net loss narrowed by 34%, or CA$66 million, year over year. Canopy Growth is taking active measures to reduce its cash loss by slashing its workforce and restructuring corporate management.

Since its launch, the company has shipped more than 1.2 million cannabis-infused beverages in Canada. Canopy Growth's Cannabis 2.0 portfolio, consisting of drinks, chocolates, vape cartridges, and vape pens, now accounts for 13% of its total business-to-business sales.

The strongest-performing segments in the quarter were international -- the amount of dried flower sold rose by 181% in Germany -- and medical cannabis. Canopy Growth brought in CA$20.2 million in sales of medical marijuana, representing 92.3% growth from the CA$10.5 million it sold in Q12020. In addition, the company also witnessed a 74% growth in revenue from vaporizer products compared with last year.

Takeaways for investors

At first glance, Canopy Growth may seem very expensive, considering its market cap is at CA$8.9 billion (US$6.7 billion). However, this is very misleading as the company has about CA$2 billion worth of cash and investments on its balance sheet. Hence, the actual enterprise value of the company is only CA$6.9 billion.

At an annualized rate of CA$440 million in revenue, this means the company is trading at 16 times price-to-sales. At this point, investors may be wondering if that's a reasonable price to pay, considering revenue was only up by 22% in the most recent quarter compared to Q12020.

But when it comes to valuation, it is much more important to focus on what businesses would look like going forward, rather than their historical financials. Currently, all of the company's 22 corporate-owned weed stores have reopened, which should bring its growth rate back to its historical triple digits. The company is experiencing minimal disruptions to its product and supply chains due to the coronavirus.

Hence, this quarter's results look more like a one-time situation, attributable to initial lockdown and quarantine measures to contain COVID-19. Even in May, cannabis sales grew by about 166% year over year in the Canadian market.

When it comes to stability, Canopy Growth has done a great job as well. The company's warrant derivatives and long-term debt add up to a total of CA$765 million, which is far less than the cash it has on hand. Overall, I expect Canopy's growth to rebound sharply as economies around the world reopen, making it the top pot stock to buy for the time being.