Cannabis stocks experienced a surge in popularity towards the end of the last decade, with Canopy Growth and Aurora Cannabis emerging as two of the leading companies during that boom. However, the industry as a whole has faced considerable downturns over the past five years. Recent regulatory developments have sparked some renewed interest, prompting discussions about the future prospects for these companies.
A pivotal change came when President Trump signed an executive order recently that rescheduled cannabis from a Schedule 1 controlled substance to a Schedule 3 classification. This significant regulatory shift implies that cannabis will now be recognized as having some accepted medical benefits, along with a reduced potential for abuse compared to substances classified in the higher schedules, such as heroin.
For cannabis companies operating in the U.S., this rescheduling could open doors to critical banking services and allow them to deduct normal business expenses like other companies. The change has the potential to increase consumer demand for cannabis products, which could mean higher revenues and lower operational costs for growers. This news has led to a renewed sense of optimism among some investors regarding the futures of both Canopy Growth and Aurora Cannabis.
However, it is crucial for investors to manage their expectations. Despite this regulatory milestone, cannabis remains illegal at the federal level. The prohibition of interstate commerce presents significant complications for cannabis growers. Moreover, Aurora Cannabis has no retail or distribution presence in the U.S. market currently, which restricts its ability to capitalize on potential growth opportunities quickly.
While Aurora might seek entry into the U.S. market through acquisitions to expand its market share—similar to its strategy in Canada—its track record raises concerns. The Canadian market’s experience demonstrates that full legalization does not guarantee success, underscoring the complexities ahead for Aurora in entering the U.S.
Aurora’s financial performance has been disappointing for years; it continues to report losses despite its established position in Canada. Investors are left questioning the company’s potential for profitability in the U.S., particularly in a landscape that will likely attract numerous competitors.
Canopy Growth, on the other hand, has a direct contact with the U.S. cannabis landscape through its subsidiary, Canopy USA. Nevertheless, the company will encounter similar challenges, including stringent federal regulations and tough competition within the expanding market. As such, both Canopy Growth and Aurora Cannabis currently lack the robust investment appeal, even in light of this potential win for the broader cannabis industry.
