Forget Canopy Growth (CGC): These Pot Stocks Are Much More Attractive

It’s amazing what a difference a decade makes. Just 10 years ago, no country had legalized recreational marijuana, only a relatively small number of U.S. states had given the OK to medical cannabis, and a mere 44% of Americans polled by Gallup were in favor of a nationwide legalization of weed.

Fast-forward to today, where two countries have given the green light to recreational marijuana (Canada and Uruguay); 33 U.S. states have legalized medical pot, with 10 also allowing adult-use consumption; and a whopping 66% of the American public now favors full legalization. It’s this growing support and broadening number of legalizations within the U.S. and worldwide that have pushed growth estimates for the industry through the roof and sent pot stocks soaring.

Say hello to the only large-cap marijuana stock

Perhaps no marijuana stock has been a bigger beneficiary of this growth than Canopy Growth(NYSE:CGC). The largest pot stock in the world by market cap, Canopy has seen its share price rise from the mid-$1 range to $43 per share over the trailing four-year period, giving it a market cap of about $15 billion. Currently, Canopy Growth is the only marijuana stock that’s a legitimate large cap.

As you can imagine, there’s a lot for Wall Street to like about Canopy Growth. This is a company that’s managed to get more than 4.3 million square feet of its aggregate 5.6 million square feet in cultivation space licensed by Health Canada. The remainder should be licensed by the end of the year, leading to peak annual production of more than 500,000 kilos, assuming an average yield per square foot relative to the industry.

Canopy Growth is also flush with cash following a third equity investment from Corona and Modelo beer maker Constellation Brands, which closed in November 2018. This latest investment totaled $4 billion and gave Constellation a 37% equity stake in Canopy. Constellation also received warrants that it could execute in the future, which would increase its stake to 56%. Canopy Growth ended its fiscal third quarter with about $3.7 billion in cash and cash equivalents, giving it more than enough capital to make complementary acquisitions, diversify its product line, market and build its brands, and enter new markets.

This is also a company that’s done an excellent job of pushing into overseas markets and securing more than 70,000 kilos in domestic supply deals.

These pot stocks are far more attractive

And yet, Canopy Growth is also priced very aggressively. Wall Street isn’t expecting it to generate a recurring profit until 2021 at the earliest, and the company has been hit, like most growers, by a supply chain bottleneck in Canada. This has caused sales estimates for all growers, but most notably Canopy Growth, to plummet. With Canopy already sporting a $15 billion market cap, the truth of the matter is there are considerably more attractive pot stocks out there for investors to consider buying…

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