Why Canopy Growth (WEED.TO) Has A Great Chart Setup


As per our Cannabis Stocks in Canada forecast the cannabis sector will be among the outperformers in 2019. The bellwether stock in this sector, Canopy Growth, symbol WEED.TO, should be watched closely for confirmation of our thesis. So far so good as Canopy Growth has a great chart setup going into 2019.

Fundamentally, the cannabis sector is in a very unique situation. Just one month ago, on October 17th, Canada legalized recreational usage of cannabis. 

However, it seems that cannabis suppliers are not able to keep up with demand, primarily because of slower than anticipated production. Authorities in Canada even talk about a ‘national shortage‘ which might take several months until this issue is resolved. “After more than a month of legal recreational marijuana sales in Canada, provinces say stores are still having trouble procuring enough pot from producers that have built large valuations on promises of selling tons of the drug,” says MarketWatch.

They added that “officials and retailers in 8 of Canada’s 10 provinces all said they are receiving only small portions of the product they have ordered. One of the provinces, British Columbia, said supply issues aren’t expected to be resolved for six to 18 months, based on discussions with licensed pot producers. The other provinces did not give many reasons for investors to be optimistic, largely saying the shortages would hamper operations for weeks and likely much longer.

This is a fundamental issue that might cause the cannabis sector to consolidate for a while before it retakes its uptrend. Since October 12th stock prices of most cannabis stocks crashed some 50%.

As per Macquairie in this article it will take a while until Canopy Growth will be profitable. “Canopy’s recent earnings showed a loss for its fiscal second quarter and Macquarie is expecting it to remain loss-making for another six quarters.”

This makes for an interesting situation: demand is very strong, it outpaces supply, there is strong pressure on producers to solve supply issues because they are dealing with government authorities.

In the meantime Canopy’s stock chart looks very constructive. After a huge run during the summer, which got followed by the sell-off we mentioned before, we now see a consolidation around the peak of January, as indicated on the chart.

If, and that’s a big IF, Canopy Growth continues to trade within its channel, we suspect that it will prepare for a huge run somewhere in 2019 which may bring this stock to $120. The flipside of course is that this stock falls through support (breaks below its rising channel) in which case it will invalidate its long term uptrend.

InvestingHaven’s forecast is that the ongoing consolidation will continue until fundamentals will push the sector higher somewhere in 2019. Stated differently, fundamentals in this sector will help this sector trade in its long term uptrend.

canopy growth great chart setup


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