It’s the news that no one can stop talking about for obvious reasons. At the time of writing, the coronavirus from China has infected nearly 86,000 people and killed almost 3,000. With cases of unknown origin sprouting in multiple countries, Wall Street feared a possible pandemic, resulting in massive volatility. But what about cannabis investments like Canopy Growth (NYSE:CGC) and CGC stock?
Marijuana may get you high but that hasn’t saved the broader sector from the markets’ rough waters. For instance, Cronos Group (NASDAQ:CRON) is down 26% for the year. Tilray (NASDAQ:TLRY) has performed better but has still lost over 18% since the beginning of January. CGC stock, one of the better names, down roughly 13% year-to-date.
Still, when you consider that the Dow Jones has shed more than 11% YTD, it brings cannabis investments into perspective. As you know, investors in marijuana stocks are used to witnessing ridiculous, almost comical volatility. On the other hand, blue-chip investors are not.
While virtually all other sectors are reeling from the coronavirus, for cannabis investors, this may be the dark horse catalyst that they’ve been hoping for. As I’ll dive into later, cannabis is one of the few viable and homegrown markets that is significantly insulated from the coming economic shock. If the coronavirus continues to plague the Street, CGC stock may start looking interesting.
Based on the latest developments, the coronavirus will probably be with us for an unexpectedly long time. According to the Washington Post, suspected community transmissions of the virus have sprouted in Washington, Oregon and California.
In other words, the coronavirus is out in the open.
Why the Pandemic Bolsters the Case for CGC Stock
Right now, China is not the most popular country. When I perused some of the comments on the blogosphere, I noticed more than a few folks take potshots against the world’s second-biggest economy. This guttural response is understandable, though something that polite society considers unpalatable.
In reading the feedback from brave keyboard commandos serving on the frontlines of anonymity, I noticed a recurring theme: punish China for causing the coronavirus through boycotts of Chinese-made products.
Of course, the question is, what the heck isn’t made in China?
The irony of ironies – as one commenter with a brain pointed out – is that the chairborne ranger was probably typing his nastygram on an Apple (NASDAQ:AAPL) iPhone. I’ll add to the point. If he (for myriad reasons, I doubt that the person is a she) is like the rest of us, everything that we buy is from China, literally from head to toe.
How did we get to this point? Namely, America’s political elite sold us out to China. And with unfettered capitalism, American companies ran to China’s willing arms, eschewing moral or national security interests for profitability considerations.
Now, this outsourcing prostitution is coming to bite us in the rear as China plunges to economic purgatory. And as China goes, so too do all the companies who depend on it for the bottom line. This brings us to CGC stock.
You know who we depend on for cannabis-based products? Ourselves and our longtime neighbor and ally Canada. The global supply chain disruption that’s about to ravage international markets even harder than we’ve seen won’t touch CGC stock.
While Americans love to talk ambiguously about freedom, maligned marijuana is truly one of our few independent businesses. It should be a talking point for the 2020 election.
Still Speculative but More Interesting
Let me back up just a bit. I’m not suggesting that CGC stock is immune from downside risk. Clearly, the underlying sector is volatile, so you’d expect the same for individual players. Further, the coronavirus has an indirect impact on shares: a potentially weakened North American consumer economy means a lower revenue ceiling for Canopy Growth.
At the same time, I think the coronavirus – and more specifically, its economic threat – moves the needle for U.S. de-scheduling for marijuana. It’s not going to move it completely forward, of course. But I’m sure high-level discussions are occurring as you read this.
One of the reasons why the federal government has been reluctant to legalize marijuana is that medicinal cannabis introduces competition to big pharmaceutical firms, but with many drugs made in China, the coronavirus is already disrupting medical supply chains. Theoretically, earlier legalization with the subsequent introduction of medicinal marijuana therapies could have mitigated this situation.
Plus, a robust marijuana marketplace would foster employment opportunities that are insulated from the consequences of globalization. That’s something prior U.S. administrations could ignore because China was grinding away happily. But with China sick, all ideas are on the table.
It’s a long shot for CGC stock to assume this will translate to America’s door finally opening. But I think we can all agree that the narrative just got more interesting.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.