Why Growth Stocks Green Thumb, Curaleaf and Canopy Jumped Today
After initially selling hard early in the session on Wednesday, cannabis stocks made a comeback later in the day. At the closing bell, the shares of Green Thumb Industries (GTBIF 0.06%) – which had fallen as low as 6.1% – closed up 0.4%. Curafeuille Holdings (CURLF -2.12%) – down 5.1% in the morning – cut its losses to 2.3%. canopy growth (CCG 8.94%) went from an early morning loss of 2.7% to end the day up 8.9%.
And in fact, Canopy Growth may be the reason other cannabis stocks look healthier today.
On Tuesday, in a press release announcing its intention to “accelerate entry into the U.S. cannabis market,” Canopy Growth announced that it would create a U.S. holding company to “unleash the value of its entire U.S. ecosystem. cannabis” as soon as marijuana is legalized. here.
Canopy cited the rapid spread of cannabis legalization at the state level as reinforcing its belief that federal legalization is imminent and explaining why it is now preparing to make a “quick start” to expand its business in the United States as soon as it does. gone happen.
The U.S. marijuana market will be worth more than $50 billion in annual sales by 2026, Canopy estimates, and the company aims to capture as much of that market as possible. Additionally, by placing its majority stake in marijuana producer Acreage Holdings, as well as its 100% stake in edibles specialist Wana and cannabis extracts company Jetty under a single holding company, Canopy USA LLC, the management aims to streamline its operations, reduce costs and maximize revenues, moving the company towards profitability.
Now, this all seems like good news for Canopy Growth – indeed, in response to the announcement, the investment bank Canaccord Genuity upgraded Canopy shares to hold this morning, as The Fly just reported, and raised its price target to around $3.14 per share, just pennies from the stock’s close today.
But while the creation of Canopy USA can bring “significant benefit to the business,” according to Canaccord, it’s less clear why reorganizing Canopy’s business would help the shares of Green Thumb and Curaleaf. So why is this happening? Well, basically, it looks like Green Thumb and Curaleaf investors are taking Canopy’s decision — and especially its urgency, the “fast-track entry” part — as evidence that full-scale federal legalization may be imminent.
It’s understandable why Canopy might think that, and why investors in other marijuana stocks might hope Canopy is right — after all, it wasn’t until earlier this month that President Joe Biden announced his intention to pardoning certain federal marijuana convictions and potentially deferring marijuana as no longer a prohibited Schedule 1 drug. However, this does not necessarily imply the large-scale “US federal permit” that Canopy is banking on. Besides, even in Canada, where marijuana is basically “allowed”, marijuana companies continue to struggle to make a profit selling it.
Given this – and the even more disturbing fact according to S&P Global Market Intelligence data, no one on Wall Street sees Canopy Growth turning a profit in the next five years – I suspect that investors’ rapid about-face on Canopy Growth’s actions have more to do with irrational exuberance than with an unbiased analysis of the numbers and an analysis of Canopy’s odds. Investors looking to profit from marijuana should probably focus their attention on Curaleaf, which is already at least pro forma profitable today, or Green Thumb, which has real earnings under generally accepted accounting principles (GAAP), instead.
The fact that none of these stocks climbed nearly as high as Canopy this morning makes this advice even better.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool fills positions and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.