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With Mixed Election Results, Hold Tight With Canopy Stock

A few weeks back, I discussed the impact of the U.S. Presidential Election on Canopy Growth (NYSE:CGC) stock. As of this writing, election results are still pending. Everything now hinges on absentee ballots, which bodes well for Democratic Party nominee Joe Biden. But, even if Biden beats incumbent President Donald Trump, the results may not be enough to move the needle for this leading pot play.

CGC stock
Source: Jarretera / Shutterstock.com

How so? While the Democrats could retake the White House, the Republican party may hold onto the U.S. Senate. Sure, support for this issue is becoming more bipartisan. Yet, a split Congress may further delaying the relaxing of current laws.

And for Canopy, that’s bad news. Yes, pot scored some wins on the state level on Nov. 3. However, this Canada-based pot producer can’t enter the U.S. market until full federal legalization happens.

So, with the jury’s still out on its political catalyst, do shares remain a buy? Yes! While a Democratic Party sweep would be better for CGC stock, this stock is more than a binary play on the election.

Why? Between a solid balance sheet, and improving prospects, there’s plenty of reason for shares to keep heading higher. And, if we see a post-election pullback? Consider it prime time to enter a position.

CGC Stock and U.S. Election Results

Simply put, the Nov. 3 results fell short of Wall Street expectations. Granted, election results overall weren’t bad for marijuana legalization. Recreational pot scored some major wins on the state level on Nov. 3. The winds of change remain in favor of a fully open pot market in the United States.

But, while this bodes well for CGC stock in the long-term, it doesn’t mean much right now. As mentioned above, this company needs legalization on the federal level in order to the enter the U.S. market.

Yet, even if the results slowly trickle in Biden’s favor, there’s no guarantee the Democrats can also retake the Senate. Canopy bulls were counting on a “blue wave” (Democratic party sweep). However, so far it’s hardly been the electoral blood bath some prominent Republican politicians feared just a few weeks back.

Sure, the Democrats could still gain a slim Senate majority. But, who’s to say the Democrats will expend their newly earned political capital on secondary issues like pot legalization? Falling short of a full sweep, the odds of legalization may fail to improve in the next few years.

So, what does this mean for CGC stock? The election results may be less of a game-changer than expected. Yet, the company still has other factors in its favor. Coupled with a post-election sell-off, a favorable entry point could open up.

Other Catalysts for Canopy

Okay, so the election may not move the needle for CGC stock in the near-term. But, there’s still plenty on the table that could send shares higher in the coming quarters.

Like what? As our own Matt McCall discussed Oct. 28, Canopy continues to have multiple areas of strength relative to its peers. With its backing from deep-pocketed partner Constellation Brands (NYSE:STZ), this company has the financial strength to seize the opportunity (eventual full U.S. legalization of pot) when, not if the time comes.

In addition, the company’s big move into CBD products could help pave the way for its inevitable entering of the U.S. market. As McCall also noted, the company recently launched ShopCanopy, its CBD e-commerce site.

Yet, while Canopy has many things going for it outside the U.S. election results, it has many non-election related headwinds still in motion as well. As one commentator noted, the company is still dealing with a sluggish recreational market in Canada.

However, as discussed in its prior earnings release, Canopy’s performance in its home market improved in the quarter ending Jul 30. Its current CEO, David Klein, is correcting the mistakes made by his predecessor.

Instead of spreading itself too thin, the company is now making its existing markets profitable. This could mean continued improved results when the company next announces earnings (more below).

In short, buying CGC stock is more than a bet on the elections. While its biggest opportunity may remain years away, there’s plenty at motion put points into this stock in the near-term.

The Jury’s Still Out But Buy on Any Post-Election Weakness

As the books close on the Nov. 3 elections, what’s the next big day on Canopy’s calendar? That would be its upcoming quarterly earnings release. Results for the quarter ending Sept. 30 hit the street before the market open on Nov. 9.

In the meantime, expect volatility until we have the final election results. But, consider any sort of post-election sell-off prime time to buy. The long-term bull case for CGC stock remains in motion, no matter who prevailed at the polls.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/election-up-in-air-hold-tight-cgc-stock/.

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