Cannabis stocks are flying high on the path to legalization

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Pot stocks fly higher on legalization hopes. With CNBC’s Julia Boorstin and Melissa Lee, and and the Fast Money traders, Guy Adami, Tim Seymour, Steve Grasso and James McDonald. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

Canopy Growth shares rallied Tuesday after the Canadian cannabis company said it expects to be profitable by the second half of 2022.

“We are building a track record of winning in our core markets, while also accelerating our U.S. growth strategy with the momentum building behind the promising cannabis reform in the U.S.,” said Canopy Growth CEO David Klein in a statement on Tuesday.

Canopy shares closed Tuesday, up 11.9% at $49.09. The stock has gained about 149% over the past year, bringing its market value to more than $17.1 billion. In trading Tuesday, the stock rose to a 52-week high of $50.92.

Earlier, the company reported its third-quarter revenue rose 23% from a year ago, to $153 million Canadian dollars (US$120 million), driven by higher sales of recreational products in Canada and medical cannabis in international markets.

Canopy’s loss widened to C$829 million (US$653 milion ), or C$2.43 per share, from a loss of C$109.6 million, or 26 cents per share, a year ago.

The company said it has been trying to improve its profitability by cutting costs and controlling expenses. These efforts, combined with expected increases in demand, should help it to post a profit later next year.

Over the next 12 to 18 months, Canopy expects to lower its costs by as much as C$200 million.

With the new Biden administration, Canopy Growth is optimistic about the prospects of U.S. cannabis legalization, saying it expects to enter the market this year.

“We anticipate that this legislation will include comprehensive reform to ensure restorative justice, protect public health and implement responsible taxation while ending cannabis prohibition,” said Klein in an earnings call.

According to Owen Bennett, an equity analyst at Jefferies Group, Canopy Growth is continuing to position itself as the leading cannabis company in the U.S for near-term legislative reform, after getting ownership in Acreage and a stake in TerraAscend.

Bennett also cited its Martha Stewart CBD products line, which is already outselling 94% of all U.S. CBD brands just four months after launch, as another factor. The brand recently added CBD pet products.

Canopy Growth issued its medium-term financial targets, estimating compound annual revenue will rise between 40% and 50% from fiscal years 2022 to 2024. Additionally, the company expects to achieve positive operating cash flow in fiscal year 2023 and positive free cash flow for the fiscal year 2024.

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