Back in 2018, Canada legalized recreational marijuana on a national level, allowing each province to set its own standards and procedures for retail sales, and joining the list of developed nations that opted to tax and control rather than outlaw the green, resinous substance. In the aftermath of the vote that set the stage for legalization and the period running up to “opening day”, investors placed bets on medical marijuana producers that seemed poised to benefit from this paradigm shift. For some, national legalization in Canada was a harbinger of eventual legalization in the U.S., and as with any industry, the promise of a new market is always enticing. Arguably, the organization that attracted the most attention during this period was Canopy Growth Corporation (CGC), or “Canopy” for short. Canopy is a Canadian producer and retailer of cannabis products that offers a variety of goods and was the first cannabis company in North America to be publicly traded. Shares in Canopy exploded in value during the period around Canada’s national legalization of recreational marijuana, but have since fallen back to earth:

Canopy Growth Corp 5YR Performance

Although investors who have held Canopy’s shares since its IPO have fared quite well since public trading began, investors who took a position after mid-2019 are likely disappointed. As of late 2020, Canopy has not yet generated a profit and what initially looked like a potential millionaire maker has started to look more like a honey pot. Canopy has expanded very rapidly in hopes of capitalizing on its first mover advantage and status as the largest publicly traded cannabis company in the world by market cap. This rapid, loss-driving expansion, some headwinds in the cannabis market, and a dimming of retail investor interest in the cannabis space are the primary culprits behind Canopy’s recent stock performance.

Like many companies, Canopy has been affected by the coronavirus pandemic, and has cited stay-at-home orders, quarantine policies, and restrictions on travel as factors that have negatively effected operations through June 2020. Although the company recently reported YoY Revenue Growth of 17.8%, this is growth is primarily attributable to Canopy purchasing other cannabis producers in the last fiscal year – a factor that was priced into shares when the transactions were announced.

However, the impending election in the United States presents a potential catalyst that could drive growth in Canopy Growth Corp. shares – the increasing likelihood of the Unites States legalizing recreational marijuana. As of November 2020, 33 U.S. states had legalized medical cannabis sales, and of those, 11 have legalized recreational cannabis sales. On November 3rd, 2020, five additional states will vote on whether to allow medical cannabis sales, recreational cannabis sales, or both.

Depending on the outcome of those votes, a second “green wave” may hit the United States, driving excitement and further investment in U.S. and Canadian cannabis producers. This would bode well for Canopy, which has a further advantage in that it is backed by Constellation Brands (STZ), a American beer, wine, and spirits producer that has invested in Canopy in hopes that it will be a vehicle for THC and CBD-infused drinks in the future. As the United States moves closer to a seemingly inevitable federal legalization of recreational cannabis, traders looking for a news-sensitive investment vehicle might consider Canopy Growth Corp.