Did you give up on marijuana stocks after their disastrous 2019? The industry benchmark, the Horizons Marijuana Life Sciences ETF, slumped 36% last year, compared to the S&P 500‘s increase of 29%. If you decided to hold on your shares despite the industrywide setbacks, you’ve been on a wild ride. The coronavirus pandemic helped cannabis sales surge as…
people started accepting it as a consumer staple product, but the benchmark ETF is still down 31% since Jan. 1.
Both Canada and the U.S. saw impressive sales numbers this summer. The Canadian market, which has always been challenged by the black market, saw legal cannabis sales surpass illicit sales for the first time in the second quarter. In the U.S., states including Illinois — a rather new recreational pot market — have broken sales records. Illinois saw a massive $431 million in total sales between Jan. 1, when legalization took effect, and September.
The U.S. cannabis stocks are among the best in the industry right now, with many sporting triple-digit revenue growth. Their Canadian counterparts are also catching up, barring a few that have miscalculated supply and demand. But there is one company that could bring life-changing returns if added to your portfolio now. Canada-based Canopy Growth (NYSE:CGC) might not currently be in the same space as its U.S. counterparts, but has a bright-looking future. Let’s see why.
Canopy Growth might see clear skies soon
After being considered top cannabis picks for awhile, Canopy and its peer Aurora Cannabis (NYSE:ACB) had a disastrous 2019. Demand for cannabis pushed these companies to make some rash decisions, going too far too fast via aggressive expansion plans.
Adding to their troubles, regulatory challenges like licensing delays made it difficult for legal stores to open in Canada, and different cannabis laws in various provinces helped to keep both companies from achieving profitability. That said, 2020 has seen fewer challenges to the opening of legal stores.The province of Ontario granted its 100th store authorization in June, and Canopy opened 10 retail stores under its Tokyo Smoke and Tweed banners in the province of Alberta in September.
These factors could help Canopy grow its revenue numbers. In its first quarter, which ended June 30, revenue jumped 22% year over year to 110 million Canadian dollars, mostly thanks to medical pot sales in Canada and Germany. Canopy has yet to make a mark with its new recreational derivatives products. It has been working hard to ensure it offers consumers the best variety of innovative cannabis derivatives (vapes, edibles, beverages, and more), which Canada legalized as a part of “Cannabis 2.0” legislation in October of 2019. So far, it has few offerings available on the market, but those that are have garnered positive reviews. The company’s new derivative products also made a 13% contribution to total Canadian business-to-business sales in Q1.
Despite its revenue gains, Canopy hasn’t yet been able to hit positive earnings before income, tax, depreciation, and amortization (EBITDA), an important measure of a company’s operating performance. Rising operating expenses have resulted in EBITDA losses for the quarter of CA$92 million, compared with CA$93 million in the year-ago quarter.
With that said, as the regulatory and…
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