The Legal Marijuana Market and the Pot Stock Rush of 2019
The legal marijuana industry has been practically unchallenged in 2019 when it comes to gains. Almost no other market has been as successful in the first quarter of 2019 as the marijuana market, and I’m convinced that the marijuana industry is only going to keep getting stronger.
Let’s examine how marijuana market became so powerful, and where it’s going next.
Cannabis Legalization Goes Global
Back in 2015, when Canada first announced that it was headed toward marijuana legalization with the election of Prime Minister Justin Trudeau, a huge swell of support began to build behind the marijuana industry.
Dozens of stocks began hitting the public market, and we saw a marijuana gold rush wherein thousands of points of gains were made during those early years.
Things hit a bit of a snag in 2018 with a huge correction offsetting the gains at the beginning of that year. But then the day we were all waiting for hit: marijuana legalization in Canada.
While stocks dipped in the immediate aftermath, we’ve seen the marijuana market turn around in force since then.
Chart courtesy of StockCharts.com
The above chart shows just how successful some of our top picks here at Profit Confidential have been in 2019. Investors who have been following my column closely will have seen gains of between 50% and 100% based on my top pot stocks.
What’s motivating this large push toward share price growth in the marijuana market is the numbers: the earnings reports for these companies have seen gains as high 500% in revenue following legalization, with many claiming that this is just the start.
The overall impact, then, is that the marijuana industry is finally living up to its potential. But the ceiling is much higher than Canada.
While Canadian pot sales are likely to dictate the near-future of our top pot stocks (and that future indeed looks bright), the global legal marijuana trade has seen advancements this year that are hinting at the worldwide potential of cannabis.
For instance, many pot companies have begun expanding their business to European and other international markets, ones that will likely dwarf Canada in size.
While no country has announced legalization moves in 2019 yet, progress has been made toward that end in virtually every major modern market.
Nowhere is this more evident than in the U.S., where cannabidiol (CBD) has effectively been legalized.
The cannabis derivative is now largely available in the U.S. after the country permitted the cultivation of hemp with the Agriculture Improvement Act of 2018. The U.S. CBD market, then, is the first real glimpse at the overall cannabis market in the country—and the first real opportunity for pot stocks to enter said market.
Due to a U.S. federal ban on marijuana, Canadian pot stocks have had trouble breaching the U.S. market in states where marijuana is legal. California, for instance, is both richer and more populous than Canada and permits legal weed. But due to the federal ban, marijuana stocks are largely unable to access the Californian market.
With CBD legalization, however, Canadian pot stocks now have a way into the U.S. cannabis market without having to fear legal repercussions.
Companies like Canopy Growth Corp (NYSE:CGC) have already signaled their intention to enter the U.S. via CBD products.
So based on all that potential, it’s easy to see why I’m bullish on marijuana stocks.
Why Marijuana Stocks Are Likely to Continue to Grow
While CBD legalization in the U.S. (although the details still have to be worked out, CBD is for all intents and purposes now legal) did not receive as much fanfare and buzz as Canadian marijuana legalization, it’s likely to have just as big of an impact on pot stocks.
You see, with sales numbers now largely driving pot stocks, entering the U.S. CBD market will help keep those revenue numbers growing. The first companies that can take advantage of that opportunity are going to be the ones that will see the biggest growth in 2019.
On top of that, we are seeing sales in Canada that are coming in under analyst expectations (but that may not necessarily be a bad thing).
The biggest reason for the disparity between expectations and the sales numbers is regulatory burdens. That is to say, the government is getting in the way of the marijuana trade.
Through things like expensive special shipping requirements and licensing fees, we’ve seen a shortage in marijuana supply as well as inflated pot prices. This has led to a thriving black market and a decrease in sales.
But this is not as bad as it seems.
You see, the numbers coming in low could be a blessing in disguise. Canada, like every state in the U.S. that has figured its way through this before, will amend its regulations and strike a balance between regulatory responsibility and allowing the marijuana market to thrive.
When that happens, we’ll see sales numbers increase once more, leading to another set of strong financial reports and another round of gains. I expect that this will also coincide with the legalizing of edibles in Canada near the end of 2019, sparking a second marijuana rush.
So what we’re witnessing now is just the start of what the legal marijuana market has to offer in 2019, with the potential to see even higher gains moving forward.
The legal marijuana market has been among the strongest markets so far in 2019, and I don’t see that letting up anytime soon.
There are already several major events (like the relaxation of Canadian regulations and the growth of the U.S. CBD market) that will help spark further gains down the line.
In other words, it’s still a great time to be a marijuana bull.