High-profile marijuana stocks like Canopy Growth (NYSE:CGC) may not convince every investor with their financials. But what they lack in stability, they make up for with expansive deals. Recently, Canopy generated headlines with their acquisition of C3 Cannabinoid Compound Company, a German medical-cannabis firm. Although risky, the move should prove profitable in the long run for CGC stock.
Let’s look at some of the key details. CGC acquired C3 in an all-cash deal for 225.9 million euros, or roughly $254 million. Last year, C3 rang up 27.1 million euros through five products. Moreover, the cannabis firm has witnessed a dramatic leap forward in German medical-marijuana patients. In 2018, 19,500 patients used C3’s therapies, up 85% from the prior year.
For Canopy Growth stock, the acquisition offers vital international exposure. C3 specializes in dronabinol, which is a synthetic form of delta-9-tetrahydrocannabinol, better known as THC. Despite the chemical compound’s psychoactive effect, THC provides therapeutic benefits, particularly with pain relief.
Dronabinol allows C3 to distribute medicinal marijuana on a large scale. Now, that growth potential should translate to higher prices for CGC stock. Currently, dronabinol is a prescription drug that doctors prescribe in Germany, Austria, Switzerland and Denmark. Uses include appetite stimulation, antiemetics and sleep-apnea relief.
C3’s intellectual property aligns very well with Canopy’s own research toward cannabis-based therapies. Although the company’s partnership with alcoholic-beverage maker Constellation Brands (NYSE:STZ) stole the mainstream spotlight, it’s C3 that should take Canopy Growth stock to the next level.
After all, medical marijuana is where the action is right now. This is already a deeply established industry, which is why I think C3 is a net positive for CGC stock.
Don’t Go Myopic on CGC Stock
Still, you don’t have to search too far to find naysayers. After several marijuana stocks got off to a rocky start in 2019, many investors are ready to panic out. But it’s not just the usual market volatility that’s causing this unrest.
Many analysts, including our own James Brumley, need to see a realistic pathway to profitability. For them, the honeymoon phase where people merely focused on the newness factor of legal marijuana is over. Underneath the hood lies ugly balance sheets pocked with ever-darkening red ink.
I’m not going to sit here and deny this and other headwinds impacting CGC stock. Intractably, the sector has a credibility problem. Worse yet, shady dealings, such as what we saw with Aphria (NYSE:APHA) put a black eye on all marijuana stocks.
At the same time, I still argue that you can’t judge Canopy Growth stock and its peers based on standard analytical methods. First and foremost, the concept about profitability is overrated, especially when you’re talking about a fresh market segment.
Recall that during the early years for Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB), the common criticism was one of profitability, or lack thereof. What critics didn’t understand at the time was that both firms invested heavily to secure dominance in their respective industries.
Today, it’s foolish to slam either AMZN or FB based solely on profitability issues. I believe Canopy Growth stock will also enjoy such an exemption.
Second, you must appreciate the transformative nature of legal marijuana. Admittedly, the Canadian recreational market hasn’t always lived up to the hype. That’s Canada. But if you’ve been watching weed developments, you’ll recognize that many countries — including traditionally conservative ones — are demonstrating tolerance.
In other words, this isn’t the time to nitpick every detail. Instead, look at the bigger picture.
Either Trust Canopy Growth Stock or the Marijuana Industry
Having said all that, I can appreciate why investors don’t want to touch marijuana stocks right now. When you look at the financials for CGC stock, it’s almost the same story everywhere: red ink in cash flows and income, with revenues not nominally high enough to inspire confidence.
Such metrics make people not want to trust Canopy Growth stock. Fair enough. However, the underlying industry provides enough substance for shaky investors to grab onto. First, the political environment in the U.S. is only getting stronger for weed. Pointedly, it’s the one issue where Democrats and Republicans find consensus.
Second, it seems every Democratic presidential candidate supports full legalization. At the time of writing, President Donald Trump’s approval rating is 43.4%. I’m not sure if that’s enough to secure a second term. But if not, a Democratic president would surely green light the green stuff. And, if not in 2020, surely, a Democrat will win in 2024.
Therefore, you’re actually looking at many positives when considering CGC stock. It just requires you to address shares from a broader perspective.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.