I’ve always said that charts don’t lie. And the charts of a handful of cannabis stocks are starting to look especially promising lately. In particular, I would propose Canopy Growth (NYSE:CGC) stock as one that’s found a bottom and is slowly but surely climbing its way back up to last year’s peak, which was slightly above $50 per share.
That being said, it’s worth noting that CGC stock would need to double in price to reclaim its 2019 high-water mark. Moreover, there’s a product launch delay that was just announced which might create some short-term downward pressure on the Canopy stock price. On the other hand, I just got wind of an under-the-radar piece of legislation with the potential to disrupt the CBD market in a good way and give Canopy traders an excuse to bid the price up.
An Important Launch and a Surprise Delay
A great deal of excitement surrounded the rollout of “Cannabis 2.0,” which is the informal name for the now-legal sale of cannabis-derivative products in Canada including edibles, beverages, and vaping products. Much of the decline in CGC stock can, in my unfathomably humble opinion, be attributed to the disappointment as the Cannabis 2.0 hype slumped: buy the rumor and sell the news, as they say.
Still, I’m not prepared to declare Cannabis 2.0 dead on arrival just yet. Canopy Growth is considered a leader in the canna-sphere and when the company submitted documentation to Health Canada back in July for a massive beverage facility, I viewed this event as a milestone for not just the company but the entire industry.
More progress came when Health Canada granted Canopy the license for the beverage facility in November. And by all accounts, the company has been moving forward in scaling the production process so the “enhanced” beverages can finally be brought to market.
As the weeks went by, however, questions arose as to whether the scaling process was, in fact, going according to plan. Nearly two months after the license was granted, Canopy Growth CEO David Klein released a statement that nobody (except for perhaps a handful of CGC short sellers) wanted to hear:
Canopy has had seven weeks to work with THC in the brand new beverage facility to scale processes and IP it has developed in the R&D environment…In order to deliver products that meet our customer’s high standards we are electing to revise the launch date while we work through the final details.
It didn’t take long for the financial message-board gurus to spew their venom. When it comes to negativity, one can always count on amateur pundits to deliver without delay. I, however, view the delay as just that: a mere postponement of what’s bound to transform the cannabis derivatives market as Canopy’s new facility will undoubtedly add tremendous value and help introduce infused beverages to a wider consumer base.
New Bill, New Hope
You might recall all of the hype that came with December 2018’s passage of the Agriculture Improvement Act or farm bill, which seemed to decriminalize hemp and therefore CBD as a consumer product. However, it didn’t take long for the Food and Drug Administration to quash investors’ dreams of CBD riches when it declared that it might take a while — possibly years — before it figures out how it will regulate CBD.
This evidently dampened retailers’ enthusiasm for developing and merchandising CBD products, effectively throwing a wet blanket on the CBD revolution. At the very least, we can conclude that the FDA’s reluctance to clarify CBD regulations didn’t help the Canopy stock price.
All hope is not lost, however; H.R. 5587, a bill filed by House Agriculture Committee Chairman Collin Peterson, could revive the CBD movement. If passed, the bill would cause CBD products to be reclassified as dietary supplements, meaning that the FDA would essentially have to treat those products like more like vitamins than pharmaceuticals (i.e., less rigorous testing requirements).
I tend to keep my expectations for governmental action muted. But I actually have high hopes for H.R. 5587. I could easily see hemp-crop champion Senate Majority Leader Mitch McConnell backing this bill and wheedling congressmen (and congresswomen) on both sides of the aisle into voting “yay” instead of “nay” on this one.
The Takeaway on CGC Stock
Believe me when I tell you that one should never pin his or her hopes on the government getting things done in a timely or competent manner. Nevertheless, even if Congress botches this one and H.R. 5587 somehow gets tabled indefinitely or rejected, progress will occur sooner or later. And Canopy shareholders will prosper, even if our elected “leaders” don’t necessarily deserve the credit for it.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
