Marijuana stocks have been off to a roaring start in 2021. But the question on many investors’ minds right now is whether pot stocks have reached their full potential or there’s still room for them to grow. In other words, is now a smart time to invest in weed stocks? The short answer: yes.
The first wave of marijuana stock gains in 2021 came after Joe Biden won the U.S. presidential election.
While President Biden is certainly not the friendliest politician when it comes to U.S. pot legalization (among Democratic Party presidential hopefuls, he was about the worst), the general consensus is that, for pot stock investors, a Democratic president is preferable to a Republican one.
While former President Donald Trump wasn’t particularly anti-marijuana (he didn’t really express an opinion on the subject one way or the other), his cabinet was full of anti-pot crusaders like Jeff Sessions.
And even when Sessions was replaced by Bill Barr as attorney general, that didn’t exactly put an end to the marijuana persecution.
While not as outwardly opposed to weed as Sessions was, Barr wasn’t exactly a marijuana legalization supporter. In fact, Barr was at the center of a scandal after it came to light that he used his office to target marijuana companies as part of his personal distaste for the drug. (Source: “Barr’s Personal Animus Towards Marijuana Prompted Cannabis Industry Probes, DOJ Whistleblower Says,” Forbes, June 24, 2020.)
The Biden administration is already far better on pot stocks. How much better, of course, is the most important question for marijuana stock investors.
The first wave of pot stock gains in 2021 came about as investors and analysts saw that the changing of the guard would, at the very least, mean the U.S. Department of Justice wouldn’t be knocking down doors of legal marijuana businesses in states where the drug is permitted. That never happened under Trump, but it was a concern.
Since 2021 began, the goodwill toward weed stocks has powered them toward huge growth—and not just in the U.S.
Chart courtesy of StockCharts.com
As seen in the above chart, the top two U.S. marijuana stocks, Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) and Innovative Industrial Properties Inc (NYSE:IIPR), have surged in value, but so too have many Canadian pot stocks.
Canada-based Canopy Growth Corp (NYSE:CGC), the leading marijuana company in the world by market cap (for now), has seen its share value rebound in 2021.
So that represents the first wave of marijuana stock growth in 2021, but in my view, there’s a second wave of gains on the way.
The first reason I’ve come to believe in an imminent second wave of pot stock gains this year has to do with the increased momentum in Congress to federally legalize marijuana.
Senate Majority Leader Chuck Schumer has said that federal U.S. pot legalization will be a key priority in the current Congress. On that issue, he’s backed by Senators Ron Wyden of Oregon and Cory Booker of New Jersey.
The three senators released a joint statement at the beginning of February, saying that federal marijuana legalization would be forthcoming.
“The War on Drugs has been a war on people—particularly people of color. Ending the federal marijuana prohibition is necessary to right the wrongs of this failed war and end decades of harm inflicted on communities of color across the country. But that alone is not enough,” they said. (Source: “Booker, Wyden, Schumer Joint Statement on Cannabis Reform Legislation,” United States Senate Committee on Finance, February 1, 2021.)
“As states continue to legalize marijuana, we must also enact measures that will lift up people who were unfairly targeted in the War on Drugs.”
The prospect of federal U.S. pot legalization remains the most powerful driver for the future of the marijuana industry.
Biden won’t take any executive action to hurry along the process, true, but it doesn’t look like he would get in the way of U.S. marijuana legalization, either.
Democrats have a simple majority in Congress, so they could theoretically legalize pot at the federal level.
The problem is that there’s a decent chance that a Republican senator would filibuster the bill. That essentially means we’d need to see 60 votes in the Senate to pass the legislation.
While getting 60 votes in the Senate isn’t impossible (there are many pro-pot legalization Republican senators), in these tense, divisive political times, I just don’t see them mustering up 60 votes.
Part of the issue lies in what exactly a marijuana legalization bill would look like. There would likely be a lot of support for social reinvestment using the new funds from marijuana taxes, but that could face right-wing opposition.
But the good news is that, irrespective of the political machinations of the Senate, we could see Biden reschedule marijuana. At the moment, it’s a Schedule I drug. That means, as far as the federal government is concerned, there’s no benefit whatsoever from cannabis. Medical research, however, has demonstrated that to be 100% false.
Not only would rescheduling cannabis create a boon in the medical marijuana market, as federal funding would be allowed to go to pot research, but it would also create another surge of excitement among marijuana stock investors.
In any event, there’s a good chance we’re going to see some form of action taken on U.S. pot legalization, and even if it’s small, it will still be enough to send the market soaring upward, considering how frothy the market is right now.
Currently, all the political momentum in the U.S. is behind the marijuana market.
While it’s hard to predict just how far U.S. marijuana legalization will go, what’s blatantly obvious is that some manner of political action is going to be taken on federal pot legalization in the next few years, and that alone will likely be enough to supercharge weed stocks.