Canopy Growth is the one pot stock to own, this fund manager says

The cannabis space has seen more than its share of ups and downs in recent years but for those looking to jump in, there’s probably no better place to start than industry leader Canopy Growth (Canopy Growth Stock Quote, Chart, News TSX:WEED).

So says Bruce Campbell of StoneCastle Investment Management.

“Canopy isn’t one that we own right now [but] it’s one that we’ve owned several times in the past,” said Campbell, founder and portfolio manager at StoneCastle, who spoke to BNN Bloomberg on Thursday.

“We’ve made a bit of a pivot of late and we look more at the US producers or the niche producers in Canada,” Campbell said. “Canopy is one that if you had to hold an individual name it’s probably the one that I would look at.”

Like the rest of the sector, Canopy’s share price has been on the skids for about a year now, falling steadily since April of 2019 and then taking another noticeable dip with the overall market pullback in February and March of this year.

Cannabis has been a hot commodity during COVID-19, with companies north and south of the border posting strong sales, but stocks have yet to take off. The Horizons Marijuana Life Sciences ETF (TSX:HMMJ), which attempts to track the sector as a whole, remains well off its pre-COVID levels, for example, and is currently down 22 per cent for the year. Canopy Growth is down 19 per cent year-to-date.

Canopy rose to prominence in part due to a major investment from US beer and liquor giant Constellation Brands, which spent $5 billion in 2018 for a 38 per cent ownership stake in Canopy, a move meant to keep Constellation at the forefront of the emerging cannabis space in both its smokable and consumable forms.

But signs emerged last summer that Constellation was a little less than pleased with the path Canopy was on, resulting in the firing of then-CEO Bruce Linton and then bringing in Constellation team members including David Klein, now Canopy’s CEO, to help trim the company’s expansion efforts and concentrate on a path to profitability.

So far, the jury seems to still be out, with Canopy’s latest quarter reporting a $1.3-billion loss while net revenue grew modestly to $107.9 million compared to $94.1 million a year earlier.

On WEED’s fiscal fourth quarter, delivered in late May, Klein said, “Our Q4 performance was mixed. Our top line performance didn’t meet our expectations, and we lost market share in the Canadian recreational market.”

But Campbell still likes Canopy’s chances, especially with Constellation now driving the bus.

“Canopy has obviously done some serious restructuring of late from a management team perspective and from a facility perspective, and I would suspect that with a big partner in Constellation you’re going to probably continue to see that ship get right-sized,” Campbell said. “And they will be the dominant leader, I have no question in my mind.”

“So, if I didn’t own anything in that sector and I wanted diverse exposure, that would be certainly a way to participate in in the growth of the cannabis cannabis sector,” the portfolio manager added.