The Nov. 3 U.S. presidential election is the key near-term catalyst for Canopy Growth (NYSE:CGC) stock. While marijuana legalization is not as hot button of an issue, the results of the election could give CGC stock, which hasn’t done much this year, a much needed boost.
Why is the election such a big deal? Neither candidate is exactly pro-marijuana. But, if the Democratic party wins the White House, coupled with winning back the Senate, full federal legalization could be on the horizon.
So far, a lack of federal legalization has kept Canopy out of the U.S. market. Many major states have legalized pot for recreational and/or medicinal use. But, until it’s legal on the national level, major names like this one are shut out.
But, a Democratic party sweep doesn’t equal an instant windfall. It would still be years until the Canadian pot names gain access to what would likely be the largest pot market.
Yet, a sweep by the Democrat could drive speculators back into Canopy, sending shares soaring once again. And, while a Trump upset could fuel a big sell-off, that wouldn’t necessarily take the legalization catalyst off the table.
In short, with big potential gains outweighing downside risk, this is a solid opportunity. Even after the recent election-related run-up.
CGC Stock, U.S. Election and the Specter of Legalization
With strong poll numbers as of late, several names have moved higher, in anticipation of a Biden victory on Nov 3. Due to his explicit support of electric vehicles, it’s mostly been EV and other “green wave” stocks that have benefited from the Biden boost.
But, major pot stocks have rallied as well. And that’s no surprise, given Biden’s running mate, Kamala Harris’s recent statements on decriminalization. But, as InvestorPlace’s Chris Markoch pointed out Oct. 14, decriminalizing is not legalizing.
Decriminalization may be the first step toward reform. But, it’s still a long road to full federal legalization, and widespread commercialization, in the United States.
Yet, a Biden win could still fuel a CGC stock rally on Nov 4. With the “Robinhood effect” still a factor, speculators may bid shares higher on the headlines alone.
Sure, this could be a short-lived boost. Shares rally big on a Democrat sweep, only to head lower on profit taking. However, that doesn’t guarantee a dip back to today’s current price levels. Increased (but still long) legalization odds could mean shares settle in the $20 to $30 price range.
But, what about the downside? That is to say, President Donald Trump proves the polls wrong, and wins re-election? While it would not be as favorable an outcome, it may not impact shares as badly as you’d think at first glance.
Why a Trump Upset Doesn’t Hurt the Bull Case
Based on what he’s trading for in the prediction market, it’s safe to call Trump the underdog in this election. But, what if he pulls off an upset? Expect some near-term volatility for the aforementioned “Biden stocks.”
That includes Canopy, which could see a massive sell-off, not only if Trump wins, but if the Republicans hold onto the Senate as well. In this outcome, progress on legalization could again fall on the back burner.
Yet, this scenario doesn’t mean doom for Canopy. I don’t see shares retracing the single-digit lows set during March’s novel coronavirus crash. Also, it’s more complicated than just a Biden win versus a Trump win.
What do I mean? Given it’s not just the White House, but the Senate as well, that could change hands, there’s another possible scenario. Trump gets reelected, but the Democrats win back the Senate from the Republicans.
How is a partial Democratic victory good for Canopy? A Democrat-controlled congress could still push for a pot legalization bill. And, given a majority of Republican voters are now on board with full legalization bipartisan support may not be out of the question.
With this in mind, the upcoming election is not quite make-or-break for CGC stock. And, with the potential for big gains outweigh the risk of a major sell-off, the risk/return proposition looks good here.
It’s Not the Only Factor, But Buy Ahead of Election Night
The election itself isn’t the end-all, be-all for Canopy. In the near-term, headwinds in the Canadian market need to get better. Infused beverages, which the company is rolling out in Illinois and California next year, also need to meet expectations.
But, given a Biden victory could fuel a big rally, and a Trump victory isn’t as major a risk as it appears at first glance, the odds are in your favor at today prices. With this in mind, now may be the time to buy CGC stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.