Buy Canopy Growth as Congress Works to Decriminalize Marijuana

Person holding mobile phone with website of Canadian cannabis company Canopy Growth Corporation on screen with logo.

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Canopy Growth (NYSE:CGC) and other cannabis stocks have been in focus lately as Congress works to potentially decriminalize marijuana. While state-by-state legalization has continued to take place, the absence of a federal-level ruling has left investors waiting for more clarity on many cannabis stocks. This could be good news for CGC stock and cannabis stocks in general.

Of course, with many growth stocks and “risk-on” stocks caught in a bear market, it hasn’t been a pleasant ride for cannabis investors. For CGC stock specifically, shares are down more than 75% over the past 12 months. That is even after shares are up more than 30% from last month’s low.

However, cannabis stocks have been in the spotlight lately as Congress has been working to decriminalize marijuana. After a debate on Friday, the House of Representatives passed the MORE Act. This bill would take cannabis off of the federally controlled substances list, but legalization would be left up to each state. This is the second time that the bill has passed through the House. The first time was back in December 2020. Now, the bill will be sent to the Senate, where it was previously stalled.

Legal cannabis sales generated $25 billion last year and is forecast to increase to $65 billion in 2030. Currently, 19 states allow recreational cannabis use for adults, while 36 states allow medical marijuana use.

Amid this expected rise in legal cannabis sales, Canopy Growth is looking to ride the trend. Following a large investment in the firm by Constellation Brands (NYSE:STZ), Canopy has made several notable acquisitions in the U.S. Based out of Ontario, Canada, Canopy is using acquisitions in order to prepare for continued U.S. legalization. Specifically, Canopy Growth made a deal with Acreage Holdings back in April 2019. In a somewhat complex deal at the time, Canopy Growth agreed to a $3.4 billion acquisition of Acreage. However, the deal was amended in 2020. Now “Canopy will now pay around $843 million (based on the share prices of both marijuana stocks at the time of the announcement) to acquire 70% of Acreage.”

Canopy can still acquire the remaining 30% of Acreage Holdings after U.S. legalization. While Acreage is also based in Canada, it operates a processing and dispensing business in the U.S. As a multi-state operator, Acreage Holdings will be a major beneficiary from legalization at the federal level.

More recently, Canopy also has the right to acquire 100% of the outstanding membership interests of Wana Brands for $297.50 million. Again, that is pending the federal legalization of cannabis. Wana Brands is the top cannabis edibles company in North America.

CGC stock has not performed all that well over the past year. However, it is one of the larger and stronger cannabis stocks in the industry.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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