Trump's Marijuana Order Is Stuck at the DEA. Here's What That Means for Canopy Growth.
Key Points
Despite last December's Executive Order, efforts to reschedule marijuana remained stymied by bureaucratic gridlock.
Canopy Growth shares have tumbled on this regulatory inaction, but that's not the largest issue at hand for the company.
Operational headwinds at home, coupled with continued share dilution risk, remain the biggest red flags to this stock.
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Last December, President Donald Trump issued Executive Order 14370, intended to fast-track the rescheduling of marijuana to Schedule III, in turn paving the way for federal regulatory clarity. At the time, marijuana stocks, including Canopy Growth (NASDAQ: CGC), surged sharply on the news, with Canopy itself surging from $1.15 to nearly $2 per share.
Shares have since coughed back these gains and then some, with Canopy tumbling on the recent action, or more accurately, inaction, regarding rescheduling. That said, keep in mind that larger issues, unrelated to this factor, still loom for the company.
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The latest on the DEA's rescheduling efforts
On Sept. 29, Derek C. Julius, Chief Administrative Judge of the Drug Enforcement Administration, issued a temporary stay on the aforementioned marijuana rescheduling process, in response to calls from several parties to issue a stay, for a briefing to be completed on a recently released report on the marijuana rescheduling plan from the U.S. Government Accountability Office (GAO).
The judge gave the DEA until Oct. 13 to respond; on Oct. 9, the DEA filed its response, objecting to the briefing request but deferring to the judge. In response, Judge Julius granted another stay, to allow the anti-rescheduling parties to respond to the DEA's response.
The silver lining for Canopy Growth
Canopy Growth stock may be tumbling on this news, but keep in mind how this remains a secondary factor for the Canada-based marijuana company. Although Canopy has a U.S. affiliate, Canopy USA, Canada remains its largest market.
Issues within the Canadian recreational marijuana market are creating the greatest headwinds for the company. Yet while investors may be bidding Canopy lower for perhaps the wrong reasons, don't assume there's merit in going contrarian.
For Canopy, issues such as persistent operating losses, as well as the risk that the company taps further into its dilutive $200 million at-the-market (ATM) equity program to raise more capital, call into question its $300 million valuation. When deciding whether to buy or sell Canopy Growth, consider these factors, not U.S. rescheduling news, more strongly.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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