Canopy Growth is now a risky investment, this portfolio manager says

Canada’s legal recreational marijuana industry is now up and running but things are far from settled when it comes to pot stocks and their valuations, says investment manager Michael Decter, who claims that even for a sector heavyweight like Canopy Growth Corp. (Canopy Growth Corp. Stock Quote, Chart TSX:WEED) and its fearless leader, co-CEO Bruce Linton, there’s no telling where the stock will go.

“I think Bruce Linton has done a brilliant job of using the cache of this market in marijuana legalization to build a substantial company. Now, is the company worth $30 a share or $60 a share or $90 a share? That’s almost impossible to say and that accounts for the extreme volatility in the share price pretty much in the whole sector,” said Decter, CEO and chief investment officer at LDIC Inc, in conversation with BNN Bloomberg on Monday.

“There aren’t really good metrics yet. People are trying to develop models that are based on future sales, both medicinal and recreational, they’re trying to figure out how many states are going to legalize and how many countries in Latin America are going to legalize and when. But I would say that of everyone in this business, Bruce Linton has been the rock star, he’s been the one that has moved ahead,” he says.

Cannabis stocks have had their highs and lows over the past year and a half, with Smiths Falls, Ontario’s Canopy Growth leading the way at practically every turn. First, there was the marijuana craze that captured wider attention back in December of 2017, when little-known pot stocks started shooting up the charts. That was followed by a lull through last spring and than a monumental build-up to the October 17 legalization date, touched off in August by Canopy’s $4.5-billion deal with alcohol giant Constellation Brands.

And Canopy has been front-and-centre in the early-2019 surge in pot stocks, as well, with the stock climbing 76 per cent over the month of January alone. Currently, WEED is up 56 per cent year-to-date.

Decter says that investors need to be ready for more volatility as the sector is still trying to find its footing.

“I wouldn’t buy it on a day when it’s hitting a new high, I would wait,” he says. “Now, I’m the guy who didn’t buy it at $0.85 when I could have. I’ve owned it and we’ve done well on it and we’ve owned one of their subsidiaries and did extremely well on it, for which I thank Bruce. But this is not a stock that’s going to let you sleep at night. It’s not a stock that you can buy and put away,” he says.

“I wouldn’t put more than five per cent of your portfolio in it. If you’re a determined trader and you look at the chart a lot, there’s probably money to be made in just trading the volatility in the stock,” Decter says. “If you’re a long-term holder, I’d wait for it to hit a low for the year and then buy it.”