In theory, Canopy Growth (NYSE:CGC) should be one of the top performers of this year. For starters, Canopy represents the growing trend in North American for cannabis legalization. And with the possibility of a blue wave overcoming the U.S. general election in November, a viable path toward full recreational legalization seems within reach. Even if lightning strikes twice for President Donald Trump, it should be a net win for CGC stock.
After all, it was under the incumbent’s watch that the 2018 Agriculture Improvement Act was signed into law. Despite the awful divisiveness that has characterized the last few years in American politics – all fault belonging to the Democrats, of course – the colloquially termed farm bill represented a rare moment of bipartisanship. And that effectively set the pathway for Canopy’s U.S. inroads, including the launching of ShopCanopy.com, which specializes in cannabidiol (CBD).
Essentially, CBD is the non-psychoactive version of cannabis or weed without the fun stuff. And the fun stuff in this case is the cannabinoid tetrahydrocannabinol or THC. By taking out the psychoactive catalyst, CBD “removes” the moral barrier that has so far prevented mass-scale product evangelization.
Now, I don’t think that evangelists will endorse CBD but not having THC certainly opens the possible consumer base.
Dealing With Stress
Further, CGC stock should have benefited from the novel coronavirus pandemic. For one thing, many people swear by cannabis’ multiple therapeutic benefits. Though medical research is still being conducted, many have used CBD for everyday conditions such as stress relief. Obviously, with the pandemic, there’s been a lot of stress these days.
Additionally, the Washington Post notes that the coronavirus “is ruining our sleep.” In addition, experts state that “coronasomnia” could jeopardize our health. Sure enough, there are CBD products specializing in sleep-related issues, which again should help lift CGC stock.
Unfortunately, though, theory just hasn’t aligned with reality. Though CGC stock has gained tremendously in recent sessions, on a year-to-date basis, Canopy Growth is still in the red.
It raises the question, can the Covid-19 factor do anything to support the company’s recovery case?
Coronavirus Can Possibly Bail Out CGC Stock
One of the main reasons why medical marijuana appeals to both users and investors is the underlying natural ingredients. With weed, you’re really talking about naturally derived medicines, not exotic, experimental laboratory concoctions. If given the choice between the two, you’re probably going with the former.
As well, cannabis is something that is home grown. Back in July, I argued that because our medical supply chain was found vulnerable to global disruption, it’s never been more important to have a robust domestic medical supply infrastructure. Further, if medical marijuana is found to be effective for several conditions, this would be a win-win scenario.
Certainly, CGC stock would benefit due to greater acceptability of cannabis-based products in the U.S. As well, our medical supply partnerships in this context would involve Canada, not China. More importantly, a strong, vibrant weed market in the U.S. will promote job growth. Isn’t that what we need desperately right now?
Further, if medical marijuana could somehow aid in our fight against Covid-19, that would send CGC stock – and the competition, including Cronos Group (NASDAQ:CRON) and Tilray (NASDAQ:TLRY) – through the roof. But how likely is this scenario?
Admittedly, it’s not something that will happen overnight. However, the scientific thesis itself may be worth exploring. Here’s what medical researchers Emmanuel Shan Onaivi and Venkatanarayanan Sharma had to say about the subject:
The neurological manifestations of COVID-19 and AIDS share some molecular pathways. Phytocannabinoids, such as [delta-9-THC] and cannabidiol have been demonstrated to reduce inflammatory cytokine storms. What’s more, the approval by the US FDA for medical use of cannabidiol and [delta-9-THC] supports the hypothesis that cannabinoids could reduce the damage caused by COVID-19 by dousing the inflammatory cytokine storm provoked by SARS-CoV-2. Thus, the immune-regulatory properties of cannabis and cannabinoid formulations suggest their use in the treatment of immune-related disorders.
In conclusion, the researchers noted that the “pandemic has shed light on the lack of fundamental scientific knowledge utilizable in the prevention and treatment of viral infections. Along with many ongoing studies and clinical trials, cannabis and cannabinoid adjunctive treatment in COVID-19 could be of use in countering SARS-CoV-2 infections by quelling the cytokine storm, but require more studies and trials.”
It’s a long shot. But it’s not entirely out of the question that cannabis could be a factor in addressing Covid-19, especially if it reaches endemic status where other treatment solutions have been proven ineffective. Therefore, this could be worth considering if you’re thinking about buying CGC stock for the long haul.
Nearer-Term Catalysts Look Positive
By no means do I want to be a fear-monger. Certainly, we’re all very tired of hearing bad news because this year has been full of it. But having looked at new daily coronavirus cases as provided by the Centers for Disease Control and Prevention, I can’t help but get a sinking feeling.
Hopefully, the recent record-breaking spike will be a flash in the pan, something like what we saw in July. But if not, we could be staring at another wave. While this is negative for our collective mental health, cynically, it’s a positive for CGC stock.
Turns out, the underlying company just expanded its CBD offerings in the U.S. just in time.
To be clear, CGC stock is an extremely speculative investment. I don’t think we’re done with the volatility. But if you’ve got the patience and a longer time horizon, Canopy might not be a bad bet.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.