Major cannabis producer Canopy Growth (NASDAQ:CGC) has seen its fair share of lumps of late. Indeed, despite today’s increase of approximately 15%, CGC stock still remains down nearly 75% on a year-to-date basis alone. From this company’s all-time high, that number is more like 95%. Ouch.
Today’s surge in CGC stock appears to be tied to a few separate catalysts. From a macro perspective, last week’s announcement that decriminalization legislation is expected to be put forward in the Senate has grabbed investors’ attention. While this legislation is broadly expected to fail, the fact that cannabis regulation is getting more attention is a good thing for investors. This week, President Joe Biden stepped up the commentary on cannabis, noting he still intends to free those imprisoned for certain kinds of cannabis possession or usage.
Additionally, a Canopy subsidiary, beverage maker BioSteel, announced a partnership with a Toronto Blue Jays pitcher. This deal shines the spotlight on Canopy from a different angle, with investors assessing the company’s growth prospects in the beverage sector as well.
That said, are these catalysts enough to inspire another rally in CGC stock? Let’s discuss.
Is CGC Stock a Buy Following Today’s Rally?
Like all cannabis producers, there were extremely bullish expectations heading into Canada’s legalization of pot. This was followed by another rally tied to Democratic Party wins in both the U.S. House and Senate. Yet, both have yielded little fruit, especially when it comes to U.S. legalization. As a Canada-based producer, Canopy has enjoyed approximately a half-decade of legalization north of the border. That said, the Canadian market is very small (smaller than that of California, for perspective). Thus, U.S. legalization is the real catalyst investors in this high-growth sector have been banking on for some time.
Barring some sort of outright legalization bill, the decriminalization of cannabis in any way, shape, or form could be bullish for this sector. There is some hope that this bill could pass, or pass in some different form. For a sector that’s been otherwise left for dead, fresh discussion is clearly a good thing.
That said, the cannabis sector is one that remains highly speculative. Growth forecasts haven’t materialized as expected, even in the Canadian market. Thus, short sellers have so far been proven right on Canopy and its peers.
Will that change? Perhaps. But with midterms coming up, unless we see some sort of action in the next few weeks, many may declare this rally dead before it gets started.
On the date of publication, Chris MacDonald 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 InvestorPlace.com Publishing Guidelines.
