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This Is No Time to Fight the Bulls over Canopy Growth

If you like to invest in the biggest and best companies in a sector, then your best bet for cannabis wealth is definitely Canopy Growth (NASDAQ:CGC). A stake in CGC stock is a relatively safe position as Canopy is a giant among the world’s cannabis cultivators.

I sometimes refer to CGC as a bellwether stock because it’s a pretty good gauge of how the cannabis sector is doing generally. By that measure, suffice it to say that the pro-cannabis movement made outstanding progress in November.

It seems that most cannabis stocks did well in November, actually, but CGC stock is closely watched and heavily traded. Therefore, it’s conceivable that other cannabis stocks followed CGC’s lead as it moved upwards. That’s how important Canopy Growth is.

Sure, Canopy’s recently reported fiscal data was a contributing factor in CGC stock’s price move. Awe will certainly discuss those financial results. Yet, there’s also something else going on that could provide a tailwind to the broader cannabis market for years to come.

A Closer Look at CGC Stock

To quote InvestorPlace contributor Mark R. Hake, “It wasn’t that long ago that CGC stock was in the doldrums and its outlook was quite dark.”

That’s a well-worded summation of the struggles that CGC stock holders had to endure earlier this year. The onset of the novel coronavirus took a terrible toll on CGC, sending it from the $25 area in January to a bruising 52-week low point of $9 in March.

For many months, getting CGC stock back above the previous short-term high of $25 seemed like a pipe dream. Sure, there were price spikes in May and July, but those were short-lived.

Then came November and the bulls were off to the races. Astonishingly, it only took a few weeks for the CGC stock price to ascend from $19 to $29. Thus, the key $25 resistance level was breached almost instantaneously.

So, what events could have given the CGC stock bulls so much confidence and momentum?

A November to Remember

For one thing, Canopy Growth released its fourth-quarter financial results in November. A loss was reported, no doubt about it, but the loss wasn’t nearly as bad as expected.

For instance, Wall Street expected Canopy to post a per-share earnings loss of 37 cents (all earnings-related figures herein are in Canadian dollars) for the company’s fiscal second quarter.

The actual result turned out to be nine cents per share. Hence, comparatively speaking, Canopy posted a huge beat.

Moving over to quarterly net revenues, Wall Street was bracing for CAD$118.1 million. Again, there was a market beat as the actual result was CAD$135.3 million. This result also represents a 77% year-over-year improvement.

A Nation in Transition

It is true that Canopy Growth posted a per-share earnings loss. Nonetheless, the company appears to be doing better than expected and is moving in the right direction.

And yet, there’s another catalyst on the horizon and it’s not specific to Canopy. As the U.S. transitions into a Biden-Harris administration, the political winds are changing and CGC stock holders are in celebration mode.

President-elect Joseph Biden has, in fact, expressed support for the pro-cannabis movement. In 2019, Biden campaign spokesman Andrew Bates said, “He supports decriminalizing marijuana and automatically expunging prior criminal records for marijuana possession, so those affected don’t have to figure out how to petition for it or pay for a lawyer.”

Moreover, Vice President-elect Kamala Harris has sponsored the MORE Act. This proposed measure would remove cannabis from the list of controlled (i.e., federally illegal) substances.

As the Trump administration begins to take steps to accept and facilitate a transition to a Biden presidency, CGC stock holders have every reason to believe that hurdles may be cleared in the path towards cannabis decriminalization over the coming years.

The Bottom Line

Encouraging developments were found in November, both specific to Canopy Growth and for the broader cannabis market as a whole.

All in all, then, this is certainly no time to short-sell CGC stock. If anything, it’s time to look ahead to the future of Canopy Growth as a leader in a potentially hyper-growth market.