CGC stock slumped to a two-year low last week in light of hugely disappointing quarterly earnings, but could the declining value of Canopy Growth (TSX:WEED) (NYSE:CGC) shares represent a buying opportunity for investors? Some analysts seem to think so.
The Earnings
Canopy released its second-quarter earnings last week, and it was definitely a major disappointment for investors. The company reported an adjusted loss of $155.75 million CAD, well over analysts' estimated loss of $92.9 million CAD, which Canopy Growth has attributed to a major spike in operating costs as its scales its business in the first year of legal cannabis, despite revenue almost tripling to $76.6 million CAD. Loss per share came in at $0.96, well over double analysts' estimates of $0.40. CGC stock slumped over 20% following the earnings report.
The Opportunity
For the more risk-tolerant investors, speculating on when a stock has hit its lowest point is the aim of the game. Analysts at the MJ Global Report believe that CGC stock may have finally bottomed out, and point to this time two years ago when the stock was moving in a similar range to now. In November 2017, CGC shares were trading at $15, and "bears felt like Xmas had come early, but they were wrong." In less than a month, Canopy shares sharply reversed and doubled to almost $30, trading even higher by mid-January.
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The market was markedly different two years, though, with legalization still 12 months away and optimism surrounding the Green Rush at an all-time high. Fast forward to now, and we're all well aware of the struggles that pot stocks have faced in the freshman year of legalization. Scandals and supply issues have been compounded by a lack of retail visibility, meaning the black market remains dominant. But that doesn't necessarily mean the future for CGC stock is without hope.
The Future of CGC Stock Lies in Cannabis 2.0
Legalization 2.0 came into effect just over a month ago, and by the New Year, the market will see a huge upsurge in next-generation cannabis products, such as vapes, edibles, and infused drinks. Canopy Growth has one of the most impressive portfolios of 2.0 products, and its substantial backing by Constellation Brands (NYSE:STZ) means that CGC stock will have ample opportunity to assert itself as the dominant pot stock in the 2.0 market.
With CGC shares currently trading at $15.02 in New York, there are definitely some upsides to this cannabis play—if you can stomach the risk.
Featured Image: Canva
