There have been some indications that a number of people think that smoking cannabis will help protect them from the novel coronavirus. Of course, if that was true, Canopy Growth (NYSE:CGC) stock and its peers should get a tremendous boost as a result of the crisis, but that’s not the real mover behind CGC stock.
CGC stock and its peers have outperformed the stock market since mid-March. From its low around $9.30 reached on March 16, Canopy’s shares had surged a tremendous 60% as of April 7.
During the same period, the ETFMG Alternative Harvest ETF (NYSEArca:MJ), an ETF of marijuana stocks, has surged over 20%, while the S&P 500 has climbed about 10%.
Misplaced Faith in Cannabis
Former NFL offensive lineman Kyle Turley, who previously owned two cannabis dispensary chains, has stated that he thinks that cannabis can cure coronavirus. (Turley said that he no longer owned the dispensaries after the FDA ordered his company to stop promoting cannabis as a cure for the virus.) And an article on a European website called Health Europa asks “whether cannabis and CBD can affect contracting or recovering from COVID-19, or coronavirus.”
But the short answer to the latter question is, “no.” And importantly, the fact is that people who smoke cannabis appear to be less likely than nonsmokers, everything else being equal, to easily recover from coronavirus. As a result, I believe that, in the longer run, Canopy Growth, as well as its peers, will be hurt by the coronavirus outbreak.
Even Health Europa, which seems to be a very pro-cannabis website, avoided stating that cannabis could help people with coronavirus. The website noted that:
“[E]ven in terms of the anti-inflammatory drugs and the effect on corona, it is still unclear what the relationship is, if there is one. Many doctors are still recommending sticking to Acetaminophen for the fever for now and avoiding NSAID (anti-inflammatory) over the counter drugs until we know more.”
Dr. Stanton Glantz, a professor of medicine and director of the UCSF Center for Tobacco Control Research and Education, said that cannabis smokers are at greater risk from coronavirus than those who don’t smoke cannabis. But even the public education officer of a dispensary, Sara Payan urged people who already have predispositions to respiratory issues to stick to edibles.
Some people may take Payan’s advice and “stick to edibles” during the crisis. But others who enjoy the activity of smoking cannabis as much as the actual benefits of marijuana may turn to other activities or drugs instead. Further, it appears that Canopy Growth has a very limited assortment of edibles and beverages now, so those products may not appeal to many consumers.
It’s true that in parts of America, sales of cannabis products have jumped in recent weeks. I think part of the reason for that is the fact that the American media has largely ignored the idea that people with some unhealthy characteristics, including smokers, are, in fact, many times more likely to die from coronavirus than people without such characteristics.
Over time, however, I expect most Americans to learn that certain groups, including smokers and obese people, are many times more likely to die from coronaviorus than people without those characteristics. When that happens, the sales of cannabis in America are likely to tumble meaningfully.
Moreover, my (admittedly brief) survey of Canadian news outlets indicates that the country’s media outlets are much more likely than their American counterparts to report on the increased risk that smokers face from coronavirus. That doesn’t bode well for CGC stock and its peers.
Other Challenges and the Bottom Line on CGC Stock
A few other issues are likely to weigh on Canopy Growth and its peers. Specifically, the likely recession in Canada could hurt its sales and make even more cannabis fans buy products on the black market where prices tend to be cheaper. Secondly, Ontario, Canada’s largest province, recently decided to close its cannabis retail stores. And finally, the fact that there will be fewer parties and major events in Canada may also depress the sales of cannabis there.
Given all of the difficulties facing Canopy Growth, I recommend selling its shares at this point.
As of this writing, Larry Ramer did not own any of the aforementioned securities. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.