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 stock market gains. Almost no market has been as successful in the first quarter of 2019 as the marijuana market, and I’m convinced that it’s going to keep getting stronger.
Let’s examine how the 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 after the election of Prime Minister Justin Trudeau, a huge swell of support began to build behind the marijuana industry.
Dozens of pot stocks began hitting the public market and we saw a marijuana gold rush during which thousands of points of gains were made.
Things hit a bit of a snag in 2018, with a huge correction at the beginning of the year. But then the day we were all waiting for finally hit: marijuana legalization in Canada.
While stocks dipped in the immediate aftermath of legalization in Canada, we’ve seen the marijuana stock market turn around in force since then.
Chart courtesy of StockCharts.com
The above chart shows just how successful some of our top picks at Profit Confidential have been in 2019. Investors who have been following my column closely will have seen my top pot stocks gain between 50% and 100%.
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 revenue increases of as much as 500% following Canadian 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 to Europe and other international markets, ones that will likely dwarf the Canadian market.
While no country has announced legalization moves in 2019 yet, progress has been made toward that end in virtually every major 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 it 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. 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 to take advantage of that opportunity are likely going to be the ones that see the biggest growth in 2019.
On top of that, we are seeing sales figures in Canada that are coming in under analyst expectations.
The biggest reason for the disparity between the expectations and the sales numbers is the regulatory burden. That is to say, governments are getting in the way of the marijuana trade.
Through things like expensive special shipping requirements and licensing fees, we’ve seen shortages in the legal marijuana supply and inflated prices. This has led to a thriving black market and a decrease in legal 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 stock gains. I expect that this will coincide with the legalization of marijuana edibles in Canada near the end of 2019, sparking a second marijuana stock market 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 stock gains down the line.
In other words, it’s still a great time to be a marijuana bull.