At first glance, Canopy Growth (NYSE:CGC) offers an alluring opportunity for contrarians. Of course, Canopy Growth stock has taken a hideous pounding, along with most of the cannabis sector. At the same time, though, public attitudes are trending ever positively for the maligned plant. Thus, at some point, full legalization isn’t completely out of the question.
But then, these contrarians hear what Canopy plans next. Management recently announced that they’re prepared to launch a series of vaping products for the Canadian market. This is raising eyebrows. But what’s raising more eyebrows is the timeline: They’re supposed to hit the market later this year.
With that, the volatility for CGC stock doesn’t seem unjustified. Indeed, management almost seems arrogant. In recent weeks, the U.S. has been gripped with stories surrounding the ongoing vaping crisis. Thus far, nine people presumably tied to the epidemic have died. Additionally, federal agencies are investigating over 500 cases related to vaping-induced lung illnesses.
But it’s not just the vaping that potentially hurts Canopy Growth stock; it’s also the matter of recurring patterns found in preliminary investigations. The case involving two Wisconsin brothers selling black market vape liquids containing THC shocked the nation.
Furthermore, the U.S. Food and Drug Administration issued a warning to consumers not to vape products infused with THC. Plus, the Centers for Disease Control and Prevention admit that THC is a recurring substance found in a majority of the lung illness cases.
Optically, this presents a major challenge to Canopy Growth and CGC stock. Should investors abandon ship before they get burnt?
CGC May Instead Vindicate Vaping
Logically, it might appear that dumping Canopy Growth stock is the prudent choice. However, that in my view is the wrong choice. Admittedly a counterintuitive thesis, the company can help vindicate the vaping platform.
As I recently argued regarding my take on Altria (NYSE:MO), the platform isn’t the issue. Instead, it’s the illegal practice of vaping unregulated or otherwise non-recommended substances. Neither Juul nor any other vaporizer or e-cigarette company can control what people do with their products once sold.
That’s the same whether you’re talking about household chemicals, kitchen knives or firearms.
More importantly, Canopy is marketing the vaping products first in Canada. That’s significant because strangely enough, the surge of acute lung illnesses has only occurred in the U.S. As far as I’m aware, no other country has reported suspected vaping-related injuries.
Interestingly, the BBC reported earlier this month that no known cases exist in the United Kingdom. Again, that’s very strange: Nearly three million British people are vape users.
And what about Japan? Philip Morris International (NYSE:PM) has aggressively marketed its iQOS system — which is functionally similar to a Juul e-cigarette — there. Yet we have not heard any case of vaping-related injuries originating from the Land of the Rising Sun.
When you consider the international dynamic, the vaping crisis starts to lose its teeth. If the platform was truly responsible, surely, we’d see at least one international case.
But what really augurs well for CGC and Canopy Growth stock is that Canada provides the ultimate test. If nothing out of the ordinary happens with its vaping products, the platform receives vindication.
At that point, we can pin the blame of under-age vaping where it truly belongs: poor parenting and the American penchant for finding fault in everything and everyone else except themselves.
Regulation Is Key for Canopy Growth Stock
Interestingly, Canada has a heavily regulated market for cannabis and vaping products. It’s the same situation in the U.K., as well as in Japan. Likely, that’s at least part of the reason why Americans have suffered vaping illnesses while no one else has.
Thus, CGC has another opportunity to educate a curious public. By launching both a cannabis and vaping product into a regulated market, Canopy can prove that proper management is the societally and economically productive route.
Finally, CGC stock has held steady on long-term support at the $25 level. That tells me that some of the smart money is paying attention to the finer details. If you look closely, you’ll find that the panic over Canopy Growth has no real foundation.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
