Is This The Bottom For Canopy Growth Corporation?

Key Points

• Canopy Growth Company surged 25% but don't hold your breath for higher prices. 
• An acquisition of Acreage Holdings leading to the US market sparked the surge. 
• The full realization of potential relies on US legalization and the mid-term elections may not pan out. 

If you are wondering if this is the bottom for Canopy Growth Corporation (NASDAQ: CGC) join the club. Investors have been asking themselves that for the last three years and, to be honest, the market could fall further. If you are wondering why Canopy Growth Company shares shot up more than 26% and appear to confirm a bottom it's because of the purchase of Acreage Holdings (OTCMKTS: ACRDF). The purchase is expected to be an all-stock deal worth 0.45 CGC shares for every share of Acreage but it is yet to meet shareholder approval. The reason is to accelerate Canopy Growth Corporation’s move into the US market which it has been slowly working on. 

Canopy Growth Gets Ready For US Legalization 

Canopy Growth Company is getting ready for US legalization but don’t hold your breath. Canadian and US pot companies alike have been “getting ready” for US federal cannabis legalization for a long time and it may still be a long time before it comes. For Canopy, a move into the US market could be worth as much as $50 billion even without federal legalization so it may not matter. The real hurdle is still banking, the multistate operators are having some success but they are still plagued with banking issues that keep them locked out of many mainstream services. 

A recent survey by the American Banking Association reveals that 66% of Americans support the cannabis industry's ability to access financial services like basic banking but it really comes down to the politicians. The SAFE Banking Act has passed the House many times but is yet to even hold a vote and it may not if there is no change in the leadership. The midterm elections are just a few weeks away and will have a very resounding impact on the future of the US cannabis market. The surge in Canopy Growth Company stock may be driven by the hope that cannabis-friendly politicians will retain and gain seats. 

What Is Acreage Holdings? 

Acreage Holdings is a US-based multistate integrated cannabis operator. The company has operations in 10 states including 27 dispensaries, 9 cultivation facilities, and 7 brands. Total expected revenue for 2023 is expected to top $310 million making it one of the larger operators. The deal will merge Acreage with Canopy Growth Company’s US arm Canopy USA, LLC. The news has other major Canadian and US operators moving higher as well but investors are urged not to read too much into the news until after the elections. 

The Analysts Are Holding Canopy Growth Company 

The analysts are holding Canopy Growth Company and that amounts to a Buy if you aren’t. The caveat is that it is a weak Hold verging on Sell according to Marketbeat.com’s analyst tracking tools and the sentiment is trending lower. The price target, on the other hand, offers about 165% of upside at the consensus mark but there is a caveat here too. The consensus target is relatively steady over the last three months but the low price target, which suggests about 33% of downside is coming, is among the most recently set. 

The chart of CGC is promising but we’ve seen bottoming actions before. If this one fails to bear fruit it could lead the stock into another decline that takes it back to its very lowest levels. One scenario that may cause such a drop would be a red sweep of both houses that puts cannabis firmly on the shelf for the next two years.