Go Long on “Big Cannabis” and Ignore Edibles?

Unless you’re a momentum trader looking for some quick upside, the legalization of edibles next month should be given a wide berth by long-term investors.

Instead, a low-risk, long-range position in a big player such as Canopy Growth (TSX:WEED)(NYSE:CGC) may seem the wisest option for newcomers looking to gain upside from the cannabis industry.

The rebooted cannabis space may be a bust

Take two of the main product types due to be legalized under what pundits have dubbed Cannabis 2.0: edibles and vaping products. The former will not be hitting shelves until the middle of December, Health Canada stated back in June, and even those will be limited to products that do not in any way appeal to minors. The latter, meanwhile, may be impacted from a new stance in the U.S. that has labeled vaping as a health risk.

It’s a sobering development, and one that could dampen shares in companies hoping to clean up in the vaping space. One of the biggest potential growth areas under Cannabis 2.0 is attracting scorn south of the border, as the Centers for Disease Control and Prevention issues a fairly damning e-cigarette warning. Both the CDC and the FDA have now moved to warn young people and pregnant women to cease use of any vaping products.

There’s also the argument that CBD — the non-high-producing hemp extract that’s proving popular in the U.S. — could wane in popularity. While it has its proponents, to be sure, more stringent testing of the drug remains to be carried out, and unfavourable lab results could take their toll on share prices.

The Food and Drug Administration in the U.S. has, for instance, found several well-known brands to contain different levels of the compound than advertised.

Are long positions in the bigger players a better bet?

Needless to say, the above developments are unlikely to boost Cannabis 2.0, which is also set to kick in during a time of extreme fear in the markets, while the U.S. CBD growth market could slow.

While other products, such as topicals, won’t face the same restraints as edibles, their potential sales seem unlikely to carry the movement singlehandedly. What’s left for cannabis investors seeking upside, then?

Stats for Canopy Growth are reassuring, with newcomers to the space finding that the stock is relatively good value for money, selling at around twice its book value. Meanwhile, the grower’s market share and diversified areas of operation make for as solid a play as any in this complex new industry. The stock is proving popular with investors this week, despite a distinctly subdued market, up a few percentage points.

The bottom line

After the fizzling dud that was the first round of legalization, will Cannabis 2.0 be just another marijuana bust? The short answer is that investors would probably be wise to stay away altogether, limiting their cannabis investments to long positions in big producers, such as Canopy Growth.

Production and profitability are key in this industry, and Canopy Growth has the former covered and is on track for the latter.

This tiny TSX stock could be the next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting…

Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago – before it skyrocketed by 1,211%!

Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

Click here to discover how!

More reading

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

Source: The Fool
Go Long on “Big Cannabis” and Ignore Edibles?
The Fool

The Motley Fool
Contributor for investorsnews.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related posts