For investors, one of the agonizing characteristics of the novel coronavirus is that it doesn’t discriminate. Unless a company has direct implications involving the pandemic — Teladoc Health (NYSE:TDOC) for example — it has been a rough outing for most. That includes cannabis players like Canopy Growth (NYSE:CGC), which have already suffered well before the crisis. Clearly, there was no sympathy offered for CGC stock, which saw steep declines from mid-February to mid-March.
Still, that’s not to say that neither Canopy nor the broader weed industry didn’t have a hand in their own volatility. During the crazy phase of the green market, many if not most entities in the space eschewed fiscal stability for growth. The idea was to lay the groundwork, striking while the iron was hot. Eventually, the profitability would come. Obviously, that narrative didn’t quite pan out.
Recently, though, Canopy Growth has taken a shift toward responsible growth. That was the main theme for the company widening its fourth-quarter loss following a 743 million CAD restructuring charge. In a statement, Canopy CEO David Klein explained, “I am excited to implement our strategy reset and organization redesign over the course of fiscal 2021.”
However, Wall Street wasn’t too hot on Canopy’s revenue miss. Against a consensus target of 128.8 million CAD, figures came in at only 107.9 million CAD. Not surprisingly, CGC stock tumbled on the earnings disclosure.
While Canopy’s sales increased 15%, not hitting consensus was a big deal. As the coronavirus situation worsened, many people hoarded marijuana. Some investors figured that this alone should help bolster the revenue tally.
Despite the not-so-great news on the earnings report, I believe it’s premature to give up on Canopy Growth.
Sudden Relevancy Emerges for CGC Stock
For starters, the Covid-19 pandemic is still a frustrating and lingering threat. Cases in the U.S., while much improved from the peak of the crisis, remain uncomfortably high. Several health experts also issued warnings about a second wave.
Cynically, if another wave strikes, you would reasonably expect another round of hoarding behavior. Theoretically, this should support the price of Canopy Growth’s stock.
But the pandemic also provides an additional, more compelling narrative. As you know, the labor market is struggling to put back the pieces following the catastrophe. Yes, the stunning May jobs report offered much encouragement that the worst is behind us. This too should help lift CGC stock. After all, you can never go wrong with a stronger consumer base.
However, since the crisis began, 43 million Americans filed initial jobless claims. Before the pandemic (and since records were kept), the jobless claims figure never exceeded one million during a single-week period. Thus, there’s still much pain.
Invariably, this also means that many workers lost their employment-based health insurance. According to an estimate by the Kaiser Family Foundation, nearly 27 million people in the U.S. may have lost their coverage plans.
This is especially significant because the national lockdowns have undoubtedly created mental health pressures for many individuals. Whether related to personal finances or the strain of sudden social isolation, many find themselves needing proper care.
However, without access to health insurance and employer-based assistance programs, these suffering individuals are left to their own devices. And that’s where cannabis-based products, such as Canopy’s U.S. cannabidiol (CBD) brand “First and Free,” may offer viable solutions.
Given the potential for non-psychoactive CBD products to help ease mental health issues, Canopy has an underappreciated catalyst. Therefore, don’t throw in the towel yet on CGC stock.
Growing Public Sentiment for Cannabis
Interestingly, despite the negative headline statistics that plagued Canopy’s recent earnings report, the technical trend is very encouraging. Since mid-March of this year, the stock has generally charted a series of higher lows. Currently, shares are trading above its 50-day moving average.
This resilience isn’t coincidental. Along with cannabis’ implications for mental health, the public has increasingly supported recreational marijuana legalization in the U.S. According to a Pew study, two-thirds of Americans support legalization.
As I mentioned in my Cannabis Cash Weekly update, several former NBA players have backed the green industry. They include former first-round draft picks Isiah Thomas, Al Harrington and John Salley.
In other words, the demand and support are there. It’s just that now, players like Canopy Growth are approaching this market with a rational mindset. Over the long run, this is net positive for CGC stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
