Canopy Growth Is Intriguing If You Can Get Over the Credibility Issue

With all eyes on the novel coronavirus, Wall Street has seemingly forgotten about the legal cannabis industry. Yet certain names like Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON) have performed very well since their March doldrums. Moreover, Canopy Growth stock saw its market value jump 9% last Friday. Can investors trust this apparent resurgence in the green industry?

Indoors marijuana growing, planting cannabis, holding it in a hand (canopy cgc stock)
Source: Shutterstock

Naturally, I can appreciate why prospective buyers are hesitant to engage this sector. Billed as a groundbreaking platform, the fundamental narrative seemed transformative. Basically, an illegal, untaxable revenue source became legal and taxable, to the supposed benefit of government agencies. However, investors haven’t been feeling the love, with equity valuations failing to match the bullish hype.

However, Canopy Growth stock could rise in political tailwinds. With many pundits believing that we’ll see a blue wave in November – and given the ugly opinion polls about President Trump, who could blame them? – this bodes well for CGC and the cannabis market. After all, the Democrats are a progressive party and generally support marijuana legalization.

Admittedly, there’s one problem – former Vice President Joe Biden. While Biden is the Democrats’ pick for President of the United States, his views on legalization align more with Republicans. Recently, Politico noted that fierce debates about legalization and the broader concept of criminal justice have flared within liberal circles.

Unlike so many other Democrats, Biden has opposed full-scale cannabis legalization. On paper, this poses a significant challenge to Canopy Growth stock and the underlying company’s long-term U.S. ambitions.

Still, marijuana legalization could be a major topic in the upcoming election. Frankly, I don’t see Biden or anybody giving up votes over this relatively innocuous issue.

Canopy Growth Stock to Possibly Rise on Medicinal Potential

While the political narrative is a compelling one for Canopy Growth stock, I wouldn’t hang everything on it. That’s because Biden could very well lose the election.

I realize that’s an uncomfortable topic for millions. However, both candidates for POTUS have substantial vulnerabilities. Additionally, one must consider the realities of both the demographics of this country and the Electoral College system.

Last year, The Economist stated that “Poorly educated voters hold the keys to the White House.” Historically, Republicans have done well with this demo. Since white voters represent the majority in the U.S. and because their population is distributed more evenly relative to other demos, the Democrats could once again find themselves winning the popular vote but losing the election.

But for me, I believe the most important catalyst for Canopy Growth stock at this juncture is the underlying medicinal implications. Given the disruption to traditional medicinal supply chains, medical marijuana research has never been more important. Further, Laura Gonzalez, Ph.D., associate Professor of Finance at California State University, Long Beach, notes the following:

Like with tobacco, investors expect that the processing of marijuana may eventually include elements that will prove to be a health hazard. This uncertainly risk will continue to affect firm valuations, especially in products offered to young customers that are likely to receive the most attention from researchers. However, the supervised regulated use of marijuana for health-care purposes has much greater valuation prospects. As societies change towards providing more options to critically and terminally ill patients, there will be wider greater trust in the firms that provide quality alternatives complying with regulations and medical recommendations.

Again, with the coronavirus disrupting everything, we could see interest spike in cannabis’ medicinal potential, potentially lifting CGC.

Cannabis Is a Political Hedge

To circle back to the political argument, I realize that Trump winning a second term would probably be an unfavorable outcome for most. However, those who love cannabis – and especially those who love Canopy Growth stock – need not worry: I doubt that a victorious Trump administration would be negative for pot.

Mostly, I say this because the coronavirus devastated the economy. Before the pandemic struck, the cannabis industry represented the fastest-growing jobs sector. Unlike occupations that are subject to remote work and therefore vulnerable to global outsourcing, cannabis is a hands-on industry. These jobs aren’t going anywhere – and that’s exactly what President Trump needs.

Therefore, I would look at Canopy Growth stock as a political hedge. No matter who controls the White House, it should be a green-friendly four-year period.

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.

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