Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week or so.

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A person holds a small glass jar of marijuana.

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Canopy Growth (TSX:WEED) continued to see its shares climb higher and higher this week, as the cannabis producer benefitted from some news coming from our southern neighbours. WEED stock is now up 16% as of Wednesday when writing this article, on top of even more growth after an announcement earlier this week.

What happened

The bull run started among cannabis stocks in general as Vice President Kamala Harris followed up on her urging to reschedule marijuana under a less restrictive Schedule of drug classification. Harris called on the Drug Enforcement Agency (DEA) to speed up the rescheduling, and immediately change it under the Controlled Substance Act.

“I cannot emphasize enough that they need to get to it as quickly as possible,” Harris said of the ongoing scheduling review. “And we need to have a resolution based on their findings and their assessment.”

It now looks all but certain that the drug will be rescheduled, which would be huge news for Canopy Growth stock and other companies waiting for United States legalization. This would be a move towards perhaps some states finally getting on board with recreational use, when no longer considered a Schedule 1 offence.

Why Canopy Growth is up even more

Cannabis stocks in general saw growth from the news, but none more so than Canopy Growth stock. The drug reclassification would be huge for the company that has a lot (and I mean a lot) of its future hopes in the United States.

The company was forced to close operations, production, and a lot of its research and development in recent years. This came down to expanding so much when times were great, but expecting that legalization in the United States would come far sooner.

We still aren’t there, and this presidential race come November could be a deciding factor. But in any case, we do know that rescheduling is a step in the right direction. What’s more, legalization is certain to come eventually. Especially with a whopping 40 states already legalizing the substance.

Valuations are still low

During the President of the United States Joe Biden’s State of the Union address, he specifically mentioned marijuana use. This was about two weeks ago, sending shares of cannabis stocks on a run. That run has been further and further supported with recent news. And yet, these companies still offer a lot of value.

Especially Canopy Growth stock. It’s still one of the largest marijuana producers in the world. And yet it’s trading at some of the lowest price-to-sales multiples in years, currently at 0.93 times sales. Shares are still down 80% in the last year, but after hitting 52-week lows, have since popped 60% from March 14 to date.

As for whether now is the time to buy, it all comes down to your risk tolerance. This is not about to be the bull run we saw back in 2017. However, there is bound to be a surge in cannabis stocks once more once federal legalization is officially on the table. Until then, it will remain a risky investment – one that conservative investors will still likely want to sit on the sidelines for.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe owns shares of Canopy Growth Corporation. The Motley Fool has a disclosure policy.

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