Shares of cannabis producer Canopy Growth (CGC 2.41%) have been on fire of late. On Friday, the stock soared 69% as news broke that the German government had passed a bill that would loosen marijuana laws, which would make it possible for people to possess cannabis for personal use. Any news related to marijuana legislation is generally enough to lift cannabis stocks. And Germany is one of the larger, more promising marijuana markets in the world.
April, however, could be an even bigger month for Canopy Growth, and it may lead to further swings in its share price. The key question is which direction the stock will go and whether it's worth investing in it today.
Canopy Growth has a shareholder vote scheduled for April 12
Shareholder votes aren't uncommon but the one coming up is of particular importance to the company. Canopy Growth has scheduled a special meeting for April 12 where shareholders will vote on its plans for Canopy USA, a special purpose vehicle that the company plans to setup to house U.S.-based investments, including Acreage Holdings, Wana Brands, and other companies it has pending deals with.
Investors will vote on whether to allow Canopy Growth to create a new class of shares. These would be exchangeable shares, which would be key to the company moving ahead with setting up Canopy USA. Effectively, the vote is confirmation that shareholders want to move ahead with the company's vision and strategy relating to the U.S. marijuana market.
Approval for creating this class of shares seems highly likely as a big reason many investors remain bullish on Canopy Growth is due the hope that the U.S. marijuana market one day opens up and becomes accessible to the company.
April is generally a big month for the cannabis industry
Over the years, April 20, or 4/20, has effectively become a holiday for the cannabis industry. Regardless of the reasons, it's a day that has become synonymous with cannabis use. Having more eyeballs on the cannabis industry in the month could lead to more buying and selling activity, and so if there's cannabis-related news in April, that could have a significant impact on Canopy Growth's stock.
It was a few days before April 20, five years ago, when Canopy Growth first announced plans to acquire Acreage Holdings. On April 18, 2019, the company said the move would help it enter the U.S. cannabis market once it was possible to do so. Few investors, however, likely would have expected that five years later, the deal still hasn't closed. And that's where the creation of Canopy USA comes in -- it could potentially allow Canopy Growth to close the deal, but neither Acreage nor Canopy USA would technically be consolidated and be a part of Canopy Growth. It's effectively a complicated way of showing progress without any real progress. But with the deal going on five years now, the company may want to show that it is finally going to come to a close.
A big decision on cannabis is looming
Another possible catalyst that could come soon is news on whether the Drug Enforcement Administration (DEA) will move cannabis off of its highly restrictive Schedule I drug classification and down to a lower level. It was back in August 2023 that the Department of Health and Human Services made the recommendation to the DEA to classify cannabis as a Schedule III substance instead of Schedule I.
The DEA hasn't indicated whether it will follow that recommendation, but it may only be a matter of time before it does. With April being a key month for the cannabis industry, however, some may see it fitting if there were to be an announcement around that time. There's no expectation that a decision could be coming soon, but it is another potential catalyst to watch out for.
Despite the hype, Canopy Growth still isn't a buy
Canopy Growth's stock has been hot in recent days but investors shouldn't forget that over a five-year term, the stock has still been an abysmal investment, down a whopping 98%. It could still build on its gains in April but this is a volatile investment that has the potential to just as easily crash.
This is still an unprofitable, cash-burning business, and that's what should matter most to investors -- the fundamentals. Canopy Growth could benefit from U.S. legalization, but there's nothing on the horizon to suggest that is in any way imminent. The danger for investors by following this recent hype is that they can be led down a dangerous path. There are much better growth stocks out there to consider putting in your portfolio than Canopy Growth.
