Canopy Growth Stock Could Retest Highs After Constellation Brands Deal

Canopy Growth Corporation (CGC) shares rose more than 30% on Wednesday after the company expanded its partnership with Constellation Brands, Inc. (STZ). Under the terms of the deal, the beverage giant agreed to acquire 104.5 million shares directly from the cannabis leader in a transaction worth C$4 billion ($3.04 billion). Constellation Brands' stake in Canopy Growth could reach about 38%, assuming the exercise of its existing warrants.

Analysts have been bullish on Canopy Growth stock following the move. Canaccord upgraded the stock to Speculative Buy from Hold with a C$50 price target, representing 20% upside from Wednesday's closing price. Several other cannabis companies also received a boost, including Peter Thiel-backed Tilray, Inc. (TLRY), which received a boost from Citron Research's $45 price target. (See also: Constellation Invests Additional $4B in Pot Grower.)

From a technical standpoint, Canopy Growth stock rebounded from its reaction lows near the 200-day moving average at $23.86 toward its prior reaction highs of around $32.00. The relative strength index (RSI) moved closer to overbought levels with a reading of 63.51, but the moving average convergence divergence (MACD) accelerated its bullish upswing toward the zero line. These indicators suggest that the stock still has some room to run before consolidating a bit on its way higher.

Traders should watch for a move toward R2 resistance at $33.97 before some consolidation over the near-term. If the stock breaks out from those levels, it could retest prior highs of around $36.50. If the stock moves lower, traders should watch R1 support at around $30.15 or the 50-day moving average at $28.66 for support. A breakdown from these levels appears less likely given the bullish sentiment surrounding the stock and sector. (For more, see: Top Marijuana Stocks to Watch.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.