The news for Canopy Growth (NYSE:CGC) has been mostly negative for the past two years. However CGC stock got a brief lift in investorplace.com/wp-admin/post.php?post=1739990&action=editlate May and went positive for 2020. Unfortunately following the trend of cannabis stocks for the last two years, the stock couldn’t hold the gains and was range-bound throughout the summer.
But something seems to be happening as Canopy is making another run at going green for the year. And this time, it just may stick.
Since 2018, the bullish argument for cannabis is about the United States. Within the next decade, the U.S. projects to be the largest marijuana market in the world. Sales could reach $100 million annually. There’s just one problem. And it’s a big one.
Cannabis is still illegal on the federal level. The bulls say that legalization will become a reality faster than expected. In fact, no matter how much things look the same, the unmistakable narrative from every cannabis bull for the past two years is “this time it’s different.”
This Time May Be Different
I read an interesting blog post over the weekend that briefly got me rethinking my position on cannabis. I’ve been of the belief that cannabis is a question of when, not if. But I also believe the when is a rather long way out, particularly in the United States. And that doesn’t make a bullish case for Canopy or any cannabis stock for that matter.
This article enlightened me to a couple of points that may be changing the calculus, if not the time frame, for legalization in the United States.
One reason that CGC stock is climbing came from California Senator Kamala Harris. During the vice presidential debate, Senator Harris made clear that under a Biden administration, marijuana would be decriminalized. While that’s not the same thing as making pot legal, it does seem to be a way for states to work around the Supremacy Clause of the United States Constitution.
Decriminalizing Is Not Legalizing
For those whose eyes roll at the thought of high school civics, let me try to simplify it. Marijuana is illegal on the federal level. But many states have made medical, if not medical and recreational marijuana legal in their states. The Supremacy Clause says that when state law and federal law conflict, the federal law has supremacy.
This means that individuals can be in violation of federal marijuana laws even while being compliant with state laws. And this allows federal prosecutors to put people in jail. Harris claims that in a Biden administration those prisoners (we hope only those that merit it) will be released. That would seem to remove one obstacle.
Let Banks Lend Cannabis Companies Money
Another obstacle for cannabis companies is their inability to receive financial services from U.S. banks. The Secure and Fair Enforcement (SAFE) Banking Act would allow banks to treat legal cannabis companies as legitimate businesses and afford them the appropriate financial services. The bill passed the U.S. House of Representatives but has been languishing in the Senate.
If the Democratic Party takes control of the Senate, it seems logical that the SAFE Banking Act would be brought up for a vote. However, if President Trump were to win re-election, the outlook for the SAFE Act may still exist. Josh Enomoto made the case as follows:
Why? Because at the end of the day, Trump is a businessman. And keeping a viable job market illegal due to irrational religious reasons will not stand under his administration.
The bottom line is that the federal government may not be in a hurry to legalize marijuana. However at this point, a policy of benign neglect would be welcome.
CGC Stock May Get a Boozy Lift
I’m not ready to get on the cannabis hype train quite yet. But if I were going to take a ride, I’d be betting on CGC stock. Canopy has the resources, through its affiliation with Constellation Brands (NYSE:STZ) to ensure it will be around when cannabis is legalized in the United States.
This is one part of the bullish narrative that is coming to pass. Constellation was providing cash to Canopy for the purpose of having a ready supply of cannabis as it created cannabis-infused beverages.
Just last week, the Pabst Brewing Company launched a cannabis-infused hard seltzer. It’s not going to be available at your local liquor store anytime soon. But if you live in the state of California, you can order it from the Pabst Labs website. A four-pack costs $24. Why Pabst Labs you ask? Pabst cannot make the drink in-house.
And for its part, Constellation has been having success with its Tweed brand of cannabis-infused beverages in Canada. The company is planning to roll out the beverages in the United States. And that is good news for Canopy. But it’s still a matter of when.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.