Last summer, Canopy Growth’s survival was in doubt. This week, the Canadian cannabis company saw its shares rise about 114%.
On Friday, Germany approved a measure that decriminalizes the possession and home cultivation of cannabis, starting April 1. The measure gained final approval in the Bundesrat, the upper house of the German parliament, after some uncertainty.
“The removal of the narcotic status for cannabis is expected to accelerate the growth of the German medical cannabis market,” the company said in a statement.
Canopy, whose shares jumped nearly 36% on Friday after the news, owns German vape company Storz & Bickel, giving it exposure to Europe’s largest economy. It also offers medical cannabis products through its Canopy Medical unit.
Friday’s demonstration added to a previous one triggered by US President Joe Biden’s State of the Union address on March 7, in which he mentioned the rescheduling of cannabis. Vice President Kamala Harris went on to say that marijuana’s “absurd” Schedule I classification, which includes heroin and LSD, should be rescheduled “as soon as possible.”
Other cannabis companies, including Tilray Brands and Cronos, also jumped following the news from Germany.
Low times
Last summer, things looked much bleaker for Canopy. In late June, Benchmark analyst Mike Hickey cut the company’s price target to zero, saying it “may be unable to continue operations and meet its financial obligations.” At the time, Canopy shares had fallen 78% for the year, and the company had acknowledged a going concern risk in its annual report.
Benchmark wasn’t the only one to warn about Canopy’s prospects. CIBC Capital Markets analyst John Zamparo wrote that the company is “burning cash despite multiple cost-cutting programs,” adding that even legalizing marijuana in the U.S., if it happened, “wouldn’t be a savior.”
In February last year, Canopy cut its workforce by 60%. CEO David Klein cited competition from Canada’s black market, which he estimated accounted for 40% of the nation’s cannabis sales.
“There are two very different cannabis markets in Canada today,” he said at the time. “One that is legal, highly taxed and regulated, and that is thriving and illicit.”
Canada legalized the use of recreational marijuana in 2018, the same year beer and wine giant Constellation spent $3.8 billion for a 38% stake in Canopy. That deal sent Canopy’s market valuation soaring, putting it in the same league as plane maker Bombardier Inc.
Disappointment and uncertainty followed, but Canopy now appears to be on steadier ground.