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Why Cannabis and Canopy Growth Caught Fire Today – The Motley Fool

What happened Canopy Growth (NYSE: CGC) a top Canadian pot company, is up big again today. Shares of the pot…

What happened

Canopy Growth (NYSE: CGC) a top Canadian pot company, is up big again today. Shares of the pot titan bolted higher on a particularly rosy upgrade from analysts to Piper Jaffray. And its stock is getting another boost today from an unrelated bit of news: an upbeat earning outlook provided by its partner Constellation Brands (NYSE: STZ)

During Constellation’s quarterly conference call , held yesterday morning, the beverage giant implied that Canopy is on track to pass Wall Street’s revenue expectations over the next 1

8 months. Specifically, Constellation’s president and COO Bill Newlands noted during the call that he believes Canopy will haul in approximately 1 billion Canadian dollars in revenue over the course of the next year and a half.

This optimistic outlook appears to have helped Constellation Brands. shares rise by as much as 7% today, and also has the shares of fellow Canadian pot producer Aurora Cannabis (TSX: ACB) (NYSE: ACB) ] to spike at exactly 10% in early morning trading.

Image Source: Getty Images

So what

Why is Constellation’s glowing optimism in its canopy investment such a big deal ? Given that the Canadian pot market remains in the early stages of commercial development, industry insiders were expecting sales to ramp up fairly slowly at first. The black market, after all, is still a major source of competition for legal marijuana operations in Canada.

Complicating matters further, regulators limited the initial launch of recreational pot products to dried flowers, seeds, and oils, giving illicit operations a clear-cut competitive advantage through their ability to offer wider variety of products.

However, Constellation is predicting that – despite these headwinds in the nascent legal pot market – Canopy will exceed Wall Street’s consensus revenue estimate for the next 18 months by something along the lines of 56%. That’s a rather bold prediction. But could it not be a staggering revenue estimate if there wasn’t solid data to back it up?

Now what

Is Constellation’s outlook justified? Unfortunately, the answer to this all-important question won’t become readily apparent until top companies like Aurora and Canopy Growth start to release their quarterly earnings in the coming weeks. From what we know so far, the demand for legal marijuana has been eliminated in Canada since the drug became legal for adult-use recreational purposes last October. Whether this strong demand will translate into better-than-expected earnings remains to be seen.

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