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Why Village Farms Stock Crushed It Today

By Keith Speights - May 22, 2020 at 3:08PM

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Multiple positive developments lit a fire beneath the Canadian cannabis stock.

What happened

Shares of Village Farms International (VFF -0.72%) were soaring 22.6% as of 3:50 p.m. EDT on Friday. The cannabis and greenhouse produce company didn't announce any news of its own, but there were several other developments that were likely behind Village Farms' big gain.

One potential factor for the Village Farms' jump was Statistics Canada's release Friday morning of data showing that cannabis sales in Canada skyrocketed in March. Also, results from a study were announced on Thursday that found that some cannabis strains could help prevent the novel coronavirus from entering host cells. In addition, Bank of America reinstated coverage on big cannabis producer Canopy Growth (CGC -6.16%) with a buy rating, which could be viewed as a positive sign for the entire Canadian cannabis industry.  

Cannabis leaves with green arrow pointing up and stock chart in background

Image source: Getty Images.

So what

Probably the most important of the potential reasons behind Village Farms' surge today was the Statistics Canada data. Although this data was for March and Village Farms has already reported its first-quarter results, the numbers bode well for Village Farms and its peers in the second quarter. There are more cannabis stores opened in Canada now than there were in March with more openings on the way. 

The news about the potential for cannabis to stop the spread of COVID-19 could be huge -- but only if the study's results are proven. This study, conducted by researchers at the University of Lethbridge and the University of Calgary, hasn't been peer-reviewed yet. For now, investors should be cautious about putting too much hope that cannabis will be the miracle drug that puts the novel coronavirus pandemic in check. 

Why would an analyst's positive slant on Canopy Growth help Village Farms? Canopy is pretty much a bellwether for the entire Canadian cannabis industry. Bank of America reiterated its belief that cannabis will be a high-growth market over the long run. This kind of endorsement from a top analyst isn't just positive for Canopy Growth, it's good for Village Farms and all of its peers as well. 

Now what

Canadian marijuana stocks aren't completely out of the woods yet. There are still key questions, notably including how fast the Canadian economy will recover from the COVID-19 pandemic. But with five consecutive quarters of profitability, Village Farms should be a prime beneficiary, assuming the cannabis industry bounces back strongly over the rest of 2020.

Keith Speights 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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Stocks Mentioned

Village Farms International, Inc. Stock Quote
Village Farms International, Inc.
$2.76 (-0.72%) $0.02
Canopy Growth Stock Quote
Canopy Growth
$3.81 (-6.16%) $0.25

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