Shares of Canopy Growth Corp (NASDAQ: CGC) rallied on Thursday in response to a recent executive order by President Donald Trump, which urges the U.S. Department of Justice to reclassify cannabis from its current Schedule 1 status to Schedule 3 under federal law. Investors have shown increased enthusiasm as this shift in federal policy could transform the economic landscape for cannabis companies across the industry.
The executive order marks one of the most consequential changes in federal cannabis policy in over five decades. Portfolio manager Dan Ahrens characterized the directive as potentially dismantling the onerous tax framework that has long hindered cannabis operators in the United States. The current tax classification subjects cannabis businesses to a tax code designed specifically for illegal drug enterprises, limiting their capacity to deduct common business expenses.
Transitioning cannabis to Schedule 3 would enable companies to deduct standard operating costs, significantly enhancing their profitability outlook. This regulatory adjustment has therefore underpinned optimism among investors, leading to positive momentum in Canopy Growth's share price alongside gains in broader market indices.
Nonetheless, Ahrens urges caution, highlighting the cannabis sector's intrinsic volatility. Challenges remain, including restrictions on U.S.-based cannabis firms listing on major exchanges such as NASDAQ and the New York Stock Exchange. While the rescheduling is expected to trigger a market rally upon its finalization, it is merely an initial phase in a complex process necessitating additional clarifications in the regulatory environment.
Examining Canopy Growth’s recent stock performance reveals persistent difficulties. The stock is currently trading approximately 3.7% below its 20-day simple moving average (SMA) and 10.3% below its 100-day SMA, indicative of short-term weakness despite the recent rally. Over the past year, the share price has declined by nearly 47.31%, settling nearer to its 52-week low than its high.
Technical indicators present a mixed picture. The Relative Strength Index (RSI) rests at 42.58, signaling a neutral stance where the stock is neither overbought nor oversold. Conversely, the Moving Average Convergence Divergence (MACD) remains beneath its signal line, suggesting bearish momentum. Together, these metrics imply uncertain trends, with intermittent upward movement counterbalanced by downward pressures.
Market watchers are anticipating Canopy Growth's upcoming earnings report, scheduled for February 6. Analysts forecast a modest improvement in earnings per share, predicting a loss of three cents compared to a loss of 79 cents in the equivalent quarter last year. Revenue is projected to decline to approximately $50.59 million from $61.67 million in the prior period, signaling ongoing operational challenges.
On Thursday afternoon, Canopy Growth shares closed at $1.17, marking an increase of 2.63% according to Benzinga Pro data. Despite this gain, the stock continues to be influenced by both positive regulatory developments and unresolved market challenges.
In summary, President Trump’s executive order advocating for cannabis rescheduling has instigated renewed investor interest in Canopy Growth, reflecting potential easing of federal regulatory burdens. However, the company’s trading patterns and fundamental indicators underscore continued volatility and uncertainty within the sector. Clarity on regulatory pathways and upcoming earnings results will be pivotal for Canopy Growth's market trajectory.