Canopy Growth (NYSE: CGC / OTC: TWMJF / TSE: WEED.TO) is spending its first day on a major exchange trading fairly flat with a touch of weakness. I must admit that I am not that surprised. The listing news was already priced in and it seems investors and traders are taking some profits as they should. We saw the same type of move made when the Cronos Group (CRON) also opened up for business on the Nasdaq Exchange.
Before I go into the why and where to buy, I must confess something to everyone. I LOVE CANOPY. Seriously, it is and may very well be moving forward my favorite name in the sector. The deal with Constellations Brands (NYSE: STZ) made the biggest impression on me. Eventually we will see others like Aurora (OTC: ACBFF) and Aphria (OTC: APHQF) align themselves with other major corporations. If I were the CEO of these companies, I would want to approach other liquor and tobacco companies on possible partnerships. Why you may ask? One simple and defining word…. distribution.
You see, the way I look at the STZ and CGC partnership is that once cannabis is federally legal, there is no other company that is currently setup to be able to distribute nationally quicker than Canopy. If you are unsure of who or what Constellation Brands are, they own and distribute some of the biggest names in the liquor industry. Corona anyone? How about a nice, crisp glass of Sauvignon Blanc from Kim Crawford? Can you start putting the pieces together? An established company with major global brand recognition with distribution avenues is partnered with Canopy. Imagine how fast the markets will get flooded and how quickly these products will be available. I suspect companies like Phillip Morris (NYSE: PM) have been plotting about the federal legalization and how they can quickly can get involved. So back to Canopy and my affinity for the stock.
Canopy is also known as a high flyer. The stock also trades on good daily volume. That means institutional traders and alike are actively trading this name. Most likely due to the partnership with STZ. That is a major plus in my opinion. If the big money traders are bullish, their influence on a stock like Canopy can be substantial. That is also why I feel technical trading works great for this name also.
Now the trade I am going to offer up today may take some time to set up. The desired entry price is about 15-18% away from the current price as I write this article. I want to buy the dip at around $26.35 or lower. My stop would be at $24.28 (Based on the volatility stop I use). The reward to risk ratio initially is around 2:1 which is hardly earth shattering. The unrealized outcome could lead us to the $32.78 price if we extend beyond the recent highs and a test of the all time highs at $35.88. Both of those levels will be a tall task but it surely is possible. With established support and a rally in recent days, I want the buyers to take profits right now. This is how we can buy in at a more palatable price range and condense the risk parameters. This is a passive buy and of course I do not want people to blindly buy just because we are the possible entry price. Keep the context in perspective and stay current on any relevant news surrounding the stock.
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