There are many ways of looking at the exciting but volatile marijuana industry. Based on my own admittedly anecdotal perspective, I’d guess that most people take the fundamental approach. For instance, they view companies like Canopy Growth (NYSE:CGC) using traditional metrics like revenue and earnings growth. I think that has caused some of the wild trading in CGC stock and its peers.
If you were to divorce Canopy Growth stock from the potential full-legalization narrative, the picture would look rather bleak. For instance, Gurufocus.com has multiple red flags on the company’s equity, and for many good reasons. Against commonly utilized metrics for growth and stability, CGC ranks poorly.
After all, if Canopy stock wasn’t a marijuana play, who would invest in a company that went from a loss of less than $6 million in 2017 to over $300 million in the trailing 12-month period? Probably not too many.
Yet clearly, people are buying into the cannabis firm. For the year-to-date, the CGC stock price has skyrocketed nearly 58%. What then keeps speculators buying into an organization that is awash in red ink? It’s simple, really. They believe that eventually, the fierce headwinds will give way to untapped potential.
From that point-of-view, I believe the case for Canopy Growth stock makes sense despite the ugly print. Let’s be real: The reason why marijuana investments like Aurora Cannabis (NYSE:ACB) and Hexo (AMEX:HEXO) have disappointed recently is Canada. Primarily, the northern market is too small. Secondarily, Canada has their own internal issues to work out, such as legalization of edible cannabis products.
But even if those issues are resolved soon, the real focus for CGC stock has always been the U.S.
On the surface, this is a bold statement for Canopy Growth stock. Under U.S. federal law, the government considers marijuana as a Schedule I drug. That’s the major difference between our form of legalization and how the progressive Canadians do it: the feds essentially turn a blind eye to individual states with favorable legislation, while the Canadians eliminated all pretenses.
Although Uncle Sam clearly has bigger problems to worry about, marijuana is still serious business. De-scheduling the maligned plant would conspicuously admit government failure in combating the war on drugs. As such, many domestic financial institutions refuse to touch cannabis businesses for fear of a crackdown. Obviously, this has kept a lid on the true potential for the CGC stock price.
And yet, I highly doubt that the federal government can hold onto its archaic drug-classification system. Interestingly, current geopolitical dynamics bolster the case for Canopy Growth stock and its peers. At the end of the day, President Trump’s aggressive foreign policy stance kills jobs. On the other hand, marijuana literally grows them.
Aside from the economic pain resultant from the U.S.-China trade war, experts forecast that tensions could slash one million jobs. That’s a lot of Americans out of work. It’s especially unfavorable timing given next year’s election.
The easy solution? Full marijuana legalization. Last year, the weed industry contributed over 64,000 jobs. According to a report earlier this year from CNBC, cannabis is the fastest-growing job market in the nation. All in all, the plant known as Mary Jane has contributed 211,000 full-time jobs.
But right now, the feds are playing Hanoi Jane with the American people, killing jobs and stifling new ones. I don’t think the information-savvy electorate will stand for that, which in turn benefits the longer-term case for the CGC stock price.
Piper Jaffray analyst Michael Lavery recently wrote to clients that he expects U.S. legalization “in the next 1.5-4.5 years.” I’m with him. In fact, I wouldn’t be surprised at all if legalization occurred within the quicker end of the estimate spectrum.
That’s because the Trump administration has very few good options here. If the Democrats haven’t completely lost their minds, they’d pick someone with a true counterpoint to Trump: read Andrew Yang. Even if they pick a stupidly obvious candidate like Joe Biden, nothing motivates voters more than pain to the wallet.
This is where Trumpism fails. The President can’t go around claiming America is great again if millions are out of work; millions, by the way, that went out of work because of his policies. Again, the easy fix here is marijuana legalization, which is a proven job creator.
As the markets turn shaky on geopolitical tensions, I can’t help but think, hold on! Things will get a lot better for Canopy stock and the rest of the marijuana complex.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.