Thinking About Buying Canopy Growth? You May Want to Wait for This 1 Thing to Happen First.
Key Points
The DEA's decision on rescheduling cannabis is the next key catalyst for Canopy Growth.
A decision could be forthcoming following recent government hearings.
Given past experience, waiting for the market to digest the news may be your best move.
- 10 stocks we like better than Canopy Growth ›
For Canopy Growth (NASDAQ: CGC), as with most cannabis stocks, the next key catalyst has nothing to do with the industry or the economy. Instead, what will likely cause marijuana stocks to surge or sink from here has to do with an upcoming decision from the U.S. Drug Enforcement Administration (DEA).
This decision wouldn't resolve all of Canopy's regulatory headwinds, but since it could spark another round of bullishness, let's dive into the latest.
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The DEA, Schedule III, and what it could mean for Canopy Growth
The DEA's efforts to reschedule marijuana to Schedule III have been months in the making, with hearings on the matter only taking place recently. Legal experts seem confident that these hearings will lead to a decision that bodes well for the cannabis industry, but it's unclear whether a final decision will finally arrive.
Still, given President Donald Trump's executive order issued last December, which called for reclassification to occur "in the most expeditious manner possible," a final decision could arrive far sooner. While it's not a solution for all regulatory hurdles, it would signal that Canopy is moving closer toward consolidating its U.S. affiliate, Canopy USA, into the parent company. Canopy USA itself would benefit by being no longer subject to the deduction limitations imposed by section 280E of the Internal Revenue Code.
Buy now, or watch and wait?
So, is it time to buy Canopy ahead of the Rescheduling decision, or to watch and wait? Based on past price performance, I would go with the latter. Remember that in April, following the last bit of DEA-related legalization news, Canopy and peers surged briefly, then sank back down.
The same thing could repeat itself if the U.S. Federal Government moves ahead with a broad rescheduling of cannabis. Investors could bid shares up on the headlines at first, then retreat upon reading the details. As the best approach entails holding cannabis stocks as a long-term wager on legalization, not a short-term binary bet, waiting for the next round of regulatory progress to take shape remains your best move.
Should you buy stock in Canopy Growth right now?
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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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