In less than two weeks, Canopy Growth (NYSE:CGC) stock rallied more than 26%. Some of that strength has come from better-than-feared first-quarter earnings numbers from the cannabis group. Some of it has come from general strength in the market and optimism about a novel coronavirus vaccine. But a large portion of the CGC stock rally was due to headlines about a new study suggesting cannabis can help treat and/or prevent Covid-19 infection.
Believe me, as a CGC investor, I’ll take the gains any way they come. However, I’m very skeptical that cannabis actually significantly helps with the coronavirus. Maybe it’s true, but I’m not betting on it.
But the good news for CGC stock investors is that the headlines suggesting cannabis helps combat Covid-19 may end up helping the push for US legalization even if the research backing the headlines falls through.
The Study
The cannabis study that seems to be getting the most attention is a study by the University of Lethbridge. Researchers found that certain strains of cannabis “could prevent and treat coronavirus.”
After looking into the report more closely, I have several observations. First, it is a preclinical study. In other words, the researchers have not performed a single test on an actual human being. The testing is little more than a hypothesis at this stage.
Second, data from the preclinical 3D human cell culture study has been submitted for peer review. But it seemingly has yet to be published in a peer-reviewed journal. That means other scientists have not yet reviewed the data and determined it is actually valid.
I’m not knocking the study or the data, nor am I claiming that the study won’t ultimately be published in a peer-reviewed journal. But in terms of actual evidence of cannabis as a Covid-19, the Lethbridge study is about as flimsy as it gets at this point. To make matters worse, the study only claims that “a limited sample of high CBD Cannabis sativa extracts” might have an impact. In other words, the average strain of weed you get at your local dispensary may not have any impact at all.
In a nutshell, I looked into the study. Maybe it’s something. In my opinion, it’s probably nothing.
The Good News
But just because the study suggesting cannabis as a possible cure for Covid-19 may not be as reliable as investors realize, it doesn’t mean the headlines attached to it are meaningless. I keep reading headlines about how the coronavirus outbreak may help facilitate U.S. cannabis legalization. If the University of Lethbridge gets its study published in a peer-reviewed journal, there will be more headlines about cannabis being a potential Covid-19 cure. When the study gets funded for clinical trials, there will be even more headlines. If they get any positive data at all, there will be even more headlines.
Even if the study ultimately fails to show a beneficial link between cannabis and Covid-19, all the headlines will help drive public opinion and put more pressure on U.S. politicians to lift the federal ban. And even a majority of U.S. Republican voters (55%) support marijuana legalization these days.
Why CGC Stock?
CGC stock is the only cannabis stock that I personally bought during the market downturn in March. Canopy is the largest Canadian legal cannabis producer by both market cap and market share. It has one of the best balance sheets in the business. Canopy has a deep-pocketed financial backer in alcohol giant Constellation Brands (NYSE:STZ). It also has a conditional entry into the U.S. market via its buyout deal with multi-state operator Acreage Holdings (OTC:ACRGF).
Canopy has the lead in Canadian cannabis, and Acreage would give it the lead in U.S. cannabis in the event of legalization.
“Canopy is the most legit of all the cannabis stocks,” CNBC’s Jim Cramer recently said.
Cramer has always had a way with words.
Cannabis is probably not a cure for Covid-19. But it has a bright long-term future ahead. If you’re bullish on cannabis, CGC is a must-own stock.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book Beating Wall Street With Common Sense, which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long CGC.
