Canopy Growth Corp (CGC) rallying by more than 370% over the last three months is a testament that investors are slowly taking note of opportunities in the cannabis sector. Investors have especially become inquisitive about the Canadian company, given that it boasts a market cap of over $800 million, a feat that is unique in the industry.
Interest In the stock has not only been fueled by development in the US on the legalization of Marijuana in eight new states, but the fact that Canada could also legalize the plant. Justin Trudeau government has already given the clearest of indication of its willingness to legalize marijuana for medical purposes. Such a move would essentially lead to the expansion of the target market for Canopy growth, which has already shown what it can do.
Canopy growth is by far the biggest marijuana operator in North America having already accrued a substantial amount of market share in the first growing business. The company’s business model revolves around renting warehouses and using them to grow pot. Its business model places it at the heart of the industry with the expected growth in demand for the plant.
Amidst the impressive run that is unmatched by other stock’s in the industry, the stock faces an uphill task to maintain its recent upward momentum. The entry of professional investors into the industry is one that could spell trouble for the stock as its valuation comes under scrutiny.
A point of concern on the valuation point is the fact that the company generated $18 million in revenue over the last 12 months and still posted a net loss of $8 million. Cash flow of negative $13 million is another red flag for a company that already boasts a valuation of over $800 million.
While the future looks bright for Canopy Growth Corp (CGC) growth, the threat of competition is one that could curtail its impressive run. With the stock trading at highs of $10.48 a share, it awaits to be seen if it will continue powering higher ahead of its 52-week high of $17.86 a share.