What happened
Shares of the Canadian cannabis pioneer Canopy Growth (CGC 2.41%) are under pressure Thursday morning. Specifically, the marijuana company's shares were down by 12.9% on heavy volume as of 10:58 a.m. ET.
What's sparking this sell-off? Canopy Growth, along with several of its Canadian and American peers, has been blazing the comeback trail over the past month. Thanks to a recommendation by the U.S. Department of Health and Human Services to downgrade marijuana from Schedule I (no medical value) to Schedule III (drugs with a current medical use) in the Controlled Substances Act and recent progress on the Secure and Fair Enforcement (SAFE) Banking Act in the Senate, marijuana stocks have been on fire over this period. Canopy Growth stock, for instance, jumped by over 300% at one point in the prior 30 days.
So what
So why is Canopy Growth stock deep in the red today? Today's move appears to be little more than a broader reversion to the mean for both Canopy Growth and other recent high fliers like Aurora Cannabis (down 14% at the time of this writing).
The long and short of it is that Canopy Growth, along with many of its peers, probably won't be a fundamentally driven growth play until the U.S. removes marijuana from the Controlled Substances Act altogether, and the timing of this event is a complete unknown at this point.
Most experts think the Drug Enforcement Agency, which has the final say over marijuana's classification, will concur with the Department of Health and Human Services' recent recommendation to downgrade cannabis under the Controlled Substances Act. While a move to Schedule 3 would open the door for more research on the plant's purported medical benefits, it wouldn't end federal prohibition, which is what really matters for cannabis-based businesses in the States.
Now what
Is Canopy Growth stock a buy on this dip? It all depends on your appetite for risk. Canopy Growth could very well end up with an outsize piece of the massive cannabis market a decade from now. Then again, the U.S. government's cautious approach to full legalization could have unintended consequences for the industry over the long term, and could create a situation where marijuana is legally available only by prescription.
Indeed, a handful of U.S. lawmakers have expressed this exact concern in regard to the slow pace of legalization. To be fair, most marijuana advocates in the U.S. Congress don't share this particular concern, given the Food and Drug Administration's laissez-faire approach to cannabis regulation to date. Nevertheless, Canopy Growth stock is arguably a buy only if you side with the optimists on this all-important issue.
