Is Canopy Growth Stock Overbought at 100% YTD?

Canopy Growth Inc.

The cannabis market has seen notable volatility recently, with several pot stocks, including Canopy Growth (NASDAQ:CGC), experiencing significant momentum following news of potential marijuana reclassification by the U.S. Drug Enforcement Administration (DEA). Despite doubling in value in 2024, with a YTD increase of 100.2%, Canopy Growth still trades 46% below its 52-week highs and 98% below all-time highs. Let’s examine whether recent developments suggest Canopy Growth stock is overbought or if it still has room to grow.

Potential U.S. Marijuana Reclassification in 2024

The reclassification proposal for marijuana, as reported by The Associated Press, awaits review and approval by the White House Office of Management and Budget (OMB). However, this suggests a potentially lengthy path to legalization. Even if approved by the OMB, public comments and administrative reviews would follow, leading to uncertainty about the timing and outcome. Ed Groshans of Compass Point indicates a mere 20% chance of finalization before the upcoming elections, adding a significant risk factor to the equation.

Assessment of Canopy Growth’s Fundamentals

Despite being a major player in Canada’s cannabis industry, Canopy Growth struggles with consistent profitability. Challenges like oversupply, overvalued acquisitions, and stiff competition have hindered its financial performance. In the third quarter of fiscal 2024, the company reported a decrease in net revenue and remained unprofitable, although its net loss narrowed compared to the prior year.

Canopy Growth’s recent venture into the U.S. market through Canopy U.S.A. signals its ambition to tap into the world’s largest cannabis market. However, it faces stiff competition from established players like Green Thumb Industries (GTBIF) and Cresco Labs (CRLBF), which enjoy stronger balance sheets and entrenched market positions.

Is Canopy Growth Stock a Viable Investment?

Analyst sentiment toward Canopy Growth stock is mixed, with one “strong buy,” four “hold,” one “moderate sell,” and four “strong sell” recommendations. The mean target price of $4.45 represents a significant discount to Friday’s close, indicating skepticism among analysts about its current valuation.

Given Canopy Growth’s weak financials and lack of consistent profitability, it remains a high-risk investment option. The company needs to demonstrate sustained revenue growth and profitability to instill confidence among long-term shareholders. As such, the consensus rating of “moderate sell” appears justified for CGC stock at this juncture.

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