A Canopy Growth Stock Forecast for 2019

By Taki Tsaklanos
6 years Ago

InvestingHaven was one of the lonely voices to stay positive on stock markets in general, and cannabis stocks in particular. We tipped the cannabis sector as a potential candidate for the top 3 most profitable markets in 2019 since we published our bullish Cannabis stocks Canada forecast 2019 many months ago. InvestingHaven holds a bullish Canopy Growth stock forecast for 2019. Our Canopy Growth forecast for 2019, ultimately 2020, is 200 CAD.

During the sell-off in the last 3 months of last year we did spot something quite unusual: relative strength of cannabis stock in general, and Canopy Growth (WEED.TO) in particular. This is the beauty of a sell-off: while investors get concerned they start selling their top holdings (the ones least in red). The trick however is to focus on the markets / assets / stocks that are holding up best.

We spotted exceptional relative strength and wrote about this at length. One of the article we wrote was Canopy Growth near all-time highs, this is the message to investors in the first days of 2019. This quote stands out:

The cannabis sector shows relative strength during market turmoil. It was the first to recover aggressively. This is where investors want to put their money. Because of this we believe the cannabis sector qualifies as a top 3 investment opportunities of 2019.

That said, we want to make the point in this article that we hold a very bullish Canopy Growth stock forecast for 2019. Believe it or not, our price target is 3x higher than today’s price.

Readers can rest re-assured that we are not overreacting. We are very aware, and our Canopy Growth stock forecast for 2019 is very rational. We derived it by looking at it in a structured, disciplined way.

Canopy Growth Stock Forecast 2019: Cannabis awesome fundamentals

Let’s start with a review of fundamentals of the cannabis sector before doing our Canopy Growth stock forecast.

If there is one thing that all data points seem to confirm it certainly is the amazing growth (potential) of this sector. On the other hand, admittedly, the most recent data points on the Canadian cannabis sector deficit is somehow conflicting.

MarketWatch published an interesting piece recently about the supply/demand of the cannabis market. It also indicated, in this piece, to which market value the cannabis sector may grow short and longer term. It is based on research of Piper Jaffray.

Piper Jaffray is expecting the global cannabis market to be worth $250 billion to $500 billion a year in the long term and to be worth $15 billion to $50 billion in the nearer term.

This is not only recreational cannabis but also for medical purpose. Specifically, the CBD-infused products have nonpsychoactive ingredients that are held to have wellness benefits.

Piper Jaffray likes Canopy Growth in particular.

Canopy’s recent success in receiving a legal hemp license in New York is “a tangible first step forward in the U.S. It points to the beginning of a long US growth trajectory,” said the note. The company has not yet selected a site. It expects to invest up to $150 million in the Empire State. New York Gov. Andrew Cuomo unveiled a plan to legalize recreational marijuana last week.

“Canopy has hemp-specific IP, cash reserves, and technical expertise. It should position it well in the U.S. hemp and CBD market.” The article continues: “Though we do not yet have more specifics on its plans, we believe this tangible step into the U.S. It is a clear positive and makes us more bullish on its outlook for sustainable growth.”

Cannabis sector attracts investors, also the ultra-rich ones

Moreover, CNBC pointed out that especially in the U.S. there is a strong growth potential for CBD products.

The 2018 Farm Bill separated hemp from the legal definition of marijuana.
Non-psychoactive cannabidiol (“CBD”) are derived from hemp.
CBD is a highly marketable product with possible medical benefits.

This will favor not only cannabis producers that are able to ship to the U.S., but, more so, makers of CBD products.

Uncoincidentally, ultra-rich investors are taking positions in the cannabis sector, says CNBC.

The industry has seen a big boost since Canada legalized cannabis for recreational use. While marijuana use is illegal in the U.S. on a federal level, a number of states have legalized it for recreational and/or medical use. The stocks of Canadian pot companies like Canopy Growth have since taken off — although not without a lot of wild swings.

The rich, though, are looking at more than just public equities when it comes to cannabis. “Sometimes they own the land on which cannabis grows, sometimes they own real estate like factories, and sometimes they own the companies.”

Canopy Growth Stock Forecast vs. Canadian cannabis deficit

One very misleading area is the deficit in Canadian cannabis supply vs. demand. We see conflicting messages appearing recently.

Government officials are spreading the message that there is plenty of supply, and even a growing supply vs. demand. Marketwatch says that, one day after Canada’s health agency released recreational cannabis sales data, Canada’s minister for the Cannabis Act said there is enough pot in the country to meet demand.

However, this same article has some figures from leading cannabis producers, and the figures really do not align with the ones that the governmental bodies communicated.

There is something very odd here.

Montreal Gazette re-iterated this situation of deficit: “This situation of a structural deficit could continue for as long as three years, said Chuck Rifici, chief executive officer of Toronto-based Auxly Cannabis Group Inc. Greg Engel, CEO of Organigram Holdings Inc. (OGI.V), predicted it will be “a couple years” before the supply shortages are solved. Everett Knight, eVP for strategy and investments at Valens Groworks Corp., said it will take two to three years.”

Canopy Growth Stock Forecast 2019: The magic of the rising channel

Investors tend to buy the deficit story.

The reason we believe so is by looking at the weekly chart of Canopy Growth, the cannabis sector leader.

As said many times before at InvestingHaven we ‘start with the chart’. It is the chart that includes all opinions, fears, greed, and translates it into buy and sell orders. As per our 100 investing tips:

The chart is crucial, and it is the most factual and data driven way to look at any market. That’s why we apply the ‘start with the chart’ principle. It means we first identify trends and opportunities in assets or markets based on chart patterns. This is the basis, and we need ‘green light’ from the chat before looking further into it.

Canopy Growth is the sector leader in the cannabis sector. Its stock price peaked at all-time highs last year at 76 CAD. At the time of writing it just some 10% below all-time highs. That’s impressive as the vast majority of stocks and sectors are still recovering from the recent vicious sell-off.

Because of this we believe cannabis qualifies as a top 3 investment opportunity in 2019. And it’s not us hoping this, it is the chart signaling this. That’s how we interpret this rising channel, it’s magic. We believe investors say: “we believe in exceptional sector fundamentals and growth.”

Our Canopy Growth Stock Forecast for 2019: Price target

Our attempt to identify a price target for our Canopy Growth stock forecast for 2019 is based on the upside potential in this magic rising channel. From a risk management perspective we believe it is justified to look up (not primarily down) because of the strong and perfect uptrend of this market.

In determining the upside potential we look for the top of the rising channel which is shown on chart below. By calculating the potential we look at 2 timeframes: first part of 2019 vs secd part of 2019.

If Canopy Growth rises fast in the coming months its upside target is 140 to 160 CAD. The condition is that it peaks in the period April to June. Our base case Canopy Growth stock forecast for 2019 is 150 CAD.
If Canopy Growth rises slowly, and only accelerate after the summer of 2019, its target becomes 208 to 270 CAD. The condition is that it peaks in the period July to December. Our base case Canopy Growth stock forecast for 2019 is 200 to 250 CAD.

How realistic is this, and when will this upside potential not materialize? The probability is high. It will not materialize is markets go south, and break below the levels indicated in our 15 leading indicators overview and if Canopy Growth does not succeed breaking through all-time highs.