3 Reasons Why the Bottom Could Be in for Canopy Growth Stock
When marijuana stocks like Canopy Growth (NYSE:CGC) first started trading, investors were enthusiastic about them. Responding to the paradigm-shifting potential of marijuana legalization, Canopy Growth stock hit fresh highs after Canada, its home market, legalized the drug
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Unfortunately, the growing pains of the cannabis industry (no pun intended) began to stretch Wall Street’s patience. While legalization sounded great in theory, in reality, Health Canada, the nation’s drug regulator, suffered serious administrative backlogs. Because of this roadblock, cannabis firms were unable to operate to their fullest potential, invariably hurting names like CGC stock.
Moreover, Canopy Growth and its peers like Cronos Group (NASDAQ:CRON) and Aurora Cannabis (NYSE:ACB) delivered disappointing earnings results. That only added to the worries of the Street, which started to nervously reevaluate the industry’s financials.
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Understandably, many investors couldn’t handle the heat, abandoning once-solid investments like Canopy Growth stock.
But with marijuana stocks spilling so much red ink in the green market, does CGC stock provide an opportunity for contrarians? Admittedly, the sector remains the wild west of the stock market. However, I see three factors which may benefit Canopy Growth stock from here on out.
CGC Stock Is Gutted
First, let’s point out the obvious: the Street has absolutely gutted Canopy Growth stock. CGC stock is down 32% in 2019. Moreover, between May 1 and Nov. 1 of this year, CGC shed just over 61% of its value.
No matter how you cut it, that’s a brutal performance. But it also points to an opportunity for those who have a “glass half-full mentality.
That’s one of the arguments that Bank of America Merrill Lynch‘s Christopher Carey made in his note upgrading CGC stock from “neutral” to “buy.” Carey declared that the equity’s valuation appears “more reasonable.”
Additionally, everyone else on Wall Street has now downgraded their expectations for Canopy Growth stock and its peers. Thus, CGC may climb if it simply meets its financial guidance.
Finally Accepting the Bad News
According to Healthline.com, there are five stages of the grieving process, which are denial, anger, bargaining, depression and acceptance. Although I may be embarrassingly wrong, I think CGC stock is near or at the acceptance phase. Here’s my logic:
Denial: When cannabis stocks started tanking, proponents like me advocated looking at the tremendous opportunity for marijuana stocks. Unlike any other investment sector, legal marijuana was uncharted territory.
Anger: As marijuana stocks continued their near-vertical decline, advocates of marijuana stocks quickly became angry. We were upset that the market couldn’t see the opportunity. We believed that cannabis skeptics were intellectually deficient.
Bargaining: If only the investing public would recognize that the bad news is baked into marijuana stocks, they would rebound more quickly.
Depression: This isn’t getting any better. Let’s jump ship to a stock we can trust, like General Electric (NYSE:GE).
Acceptance: We overstated the impact of Canadian legalization. It’s time to adjust our expectations.
Since late September, many analysts have downgraded CGC stock. But with a contrarian voice emerging amid the muck, I think we may be on the road to at least a recovery of sentiment.
U.S. Legalization Would Be Huge for Canopy Growth Stock
Since the earliest days of marijuana stocks, the end goal has always been the U.S. market While Canada is no insignificant victory, it has fewer than 40 million people. On the other hand, America’s population is approximately 330 million.
However, despite many positive pieces of legislation, marijuana remains an illegal drug from the point of view of the federal government.
To help bring the U.S. fully into the 21st century, the House Judiciary Committee passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019. According to The Hill’s Marty Johnson, the legislation, if passed, would take marijuana off “the Controlled Substances Act, federally legalizing cannabis across the country. Additionally, past federal cannabis convictions would be required to be expunged.”
Now the bill heads to the Republican-controlled Senate, where it will surely face tougher opposition. Will enough conservatives, some of whom actively support marijuana legalization, support the bill to pass it?
Probably not. However, MORE is still an important victory for CGC stock over the longer term because the concept of legalization has been planted. After all, this is the first time that a Congressional committee has voted for legalization. And that means the narrative of marijuana stocks is finally getting exciting again.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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