Why Canopy Growth Stock Rallied 80% in April

Canopy Growth (TSX:WEED) stock has seen shares surge by 80% on the back of the potential for reclassification in the United States.

Amy Legate-Wolfe ❯

@amylegatewolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest.

Published May 1, 2024 4:30 pm EDT

Of all the cannabis stocks out there, one of the most popular has to be Canopy Growth (TSX:WEED). The cannabis stock came to the forefront during the cannabis boom of 2017. However, since then, shares have dropped so low that the company was forced to merge shares.

However, in April, shares of Canopy Growth stock surged by over 80%! So, what on earth actually happened?

The broader issue

The biggest issue you may have seen already, with headlines coming out that cannabis looks like it will be heading towards reclassification in the United States. And this is huge news for companies like Canopy Growth stock.

Cannabis has been labelled a Schedule III substance by the United States Drug Enforcement Administration (DEA) for over 50 years. This puts it in the same category as substances such as heroin. However, under the new ruling, it would bring it down to Schedule III. Here, it would be grouped with substances such as Tylenol with codeine.

The big win? Should the scheduling go through, which could be this year, cannabis stocks like Canopy Growth stock could benefit from tax incentives. As of now, they cannot write off typical business expenses that other businesses would be able to do. This has kept the company from making a profit. Should rescheduling fall its way, the stock could be in for a big win — that is, if it can keep afloat.

The narrower issue

While other cannabis stocks climbed, Canopy Growth stock saw an enormous boost of 80% on the back of the news due to the stock’s exposure to the United States — something Canopy Growth stock has been banking on for years now.

Canopy Growth stock stated recently the company is “cautiously optimistic” about the rescheduling news. This would bring it closer towards entering the U.S. tetrahydrocannabinol (THC) market. In response, the company issued a further 32 million shares to raise up to US$50 billion by 2026. This would help the stock gain entry into the U.S. THC market.

The move would allow it to exercise rights to acquire its Acreage Holdings and other U.S. cannabis companies. These assets would allow the company to grow incredibly fast on the news of THC reclassification.

Bottom line

We could still be a year away from seeing the rescheduling of marijuana. Furthermore, should former president Donald Trump be re-elected, he could veto the entire thing. That being said, it does look like, at the very least, there will be far less stigma around the issue and far more money to be made.

So, with that in mind, I would continue to keep an eye on cannabis stocks like Canopy Growth stock. Shares surged by 80% but remain lower than the 52-week high achieved in September of $26 per share. Plus, shares settled back by 15% after the dust settled this week. And this could mean there is time to get in on this stock before we see it rally in a similar fashion to the boom of 2017.