Canopy Growth (TSX: WEED) Stock Gains Going Up in Smoke: Should Investors Be Looking at Aphria or Aurora Cannabis?

Aphria Inc. (TSE:APH) is loved for its profitability, Aurora Cannabis Inc. (CVE:ACB) has its new Aurora Sky facility, while Canopy Growth Corp. (TSE:WEED) has had issues

Yahoo Finance | April 28, 2017: The initial hype surrounding Canopy Growth Corp. (TSX: WEED) was quite remarkable. It was the first pot stock to trade on the TSX, and for many investors, it was the only way to invest in marijuana without heading on the venture exchange. Canopy soared sky-high, and many investors made a ton of money over a very short period of time.

Fast-forward to today, and there are several ways for Canadians to invest in the booming marijuana industry. New stocks like Aphria Inc. (TSX: APH) and Aurora Cannabis Inc. (TSXV: ACB) started gaining the attention of investors, and eventually the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ) was available for investors who were looking for some diversification across the entire industry.

Inevitably, initial Canopy investors jumped ship to some of these new options, and the stock of Canopy started to lag its smaller cap peers like Aurora Cannabis, whose Aurora Sky greenhouse project has captured the attention of pundits and investors.

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It also didn’t help that the company had its reputation tarnished by a tainted marijuana scandal by one of its recently acquired subsidiaries, Mettrum Ltd. The subsidiary was knowingly using banned pesticides on its products, and this resulted in a large amount of marijuana being destroyed. The scandal eventually evolved into a class-action lawsuit, and the stock of Canopy has struggled to rally ever since. Canopy is now down approximately 22% from its high on February 17.

Is the stock going to continue to be a laggard compared to its peers? Or is the stock a more a better value play? At the $9 levels?

[Editor’s Note: Our analyst, in his latest report, calls Aphria one of the safest bets in the space, as the Company is profitable, cash-flow positive, and their expansions are phased so construction and Capex can be adjusted to meet changes in legislative timelines, reducing the potential for a large loss.

Aurora Cannabis’ new Aurora Sky facility prototype would result in a slightly smaller facility (approximately 800,000 square feet), boasting production efficiencies of nearly double those of Aphria or Canopy, which should result in cost reductions, potentially making Aurora the most profitable player in the Canadian space. Aurora Cannabis is seen by many as having the best-quality product on the market.

Bruce Linton, CEO of Canopy, made it clear that the use of banned pesticides will never happen again. He’s right, it won’t happen again, but don’t take his word for it. Once marijuana is legalized across Canada, there are likely to be stricter regulatory measures put forth by Health Canada that will require thorough testing of its product. I think it’s safe to say that we’ve heard the last of the tainted marijuana scandal, but will investors ever give Canopy a second chance?

I think the scandal, and the sell-off that followed may have permanently scared off a considerable chunk of weed investors. There are a lot of options out there right now, so there’s no real reason for investors to look back. As Warren Buffett once said, “It takes 20 years to build a reputation and [only] five minutes to ruin it.” Canopy has definitely tarnished its reputation with a lot of investors, and that has only accelerated the movement of capital from Canopy to alternative marijuana investments available to Canadian investors.

Insiders including the CEO, have been selling Canopy like crazy in recent months. I’d be very cautious if you’re thinking about investing in Canopy at current levels. Like all marijuana stocks right now, there’s going to be a lot of stomach-churning volatility in the months leading up to legalization. I’d recommend waiting on the sidelines because all the easy money has been made, and the potential rewards aren’t worth the risks right now.

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