How Will Political Upheaval Affect the Marijuana Market?

How Will Political Upheaval Affect the Marijuana Market?
iStock.com/Liia Galimzianova

Marijuana Market Vulnerable?

The legal marijuana market has largely been insulated from outside political influences, largely reacting to direct political action on marijuana.

Whether in the U.S., Canada, the EU, or anywhere else in the world, most of the political news that has impacted the marijuana market came from legislation directly relating to cannabis.

But that doesn’t mean the marijuana industry is a totally separate sector that isn’t swayed by large market movements.

That brings us to the political upheaval we’re facing today and how that may affect the marijuana market in the long term.

First, you have a lot of uncertainty in the market regarding the future of U.S. trade deals.

Whether it be the North American Free Trade Agreement (NAFTA), the new tariffs that the U.S. is looking to implement, or a number of other trade negotiations taking place around the world, the markets are beset by a number of political happenings that could be hugely influential.

For example, should the U.S. move ahead with marijuana legalization, we can expect a lot of Canadian pot companies looking to take advantage and begin trading.

After all, the reason that Canadian marijuana stocks are really the only options available right now to pot investors is that Canada is the only country allowing companies to develop the necessary infrastructure to help fuel global demand for marijuana.

Canadian marijuana legalization is therefore important, not just for opening up a huge market to legal cannabis, but also for providing a home base for marijuana companies from which to operate.

With the future of trade between Canada and the U.S. up in the air, how will those negotiations pan out, and how will that affect the future of marijuana trade between these two nations?

There’s little doubt that Canada and the U.S. will remain strong trading partners—with or without NAFTA.

The question is, however, how that trade will look moving forward. Long-term, that will have a profound effect on a number of industries, but perhaps none more so than marijuana, which is almost totally based out of Canada.

The markets overall are also responding to uncertainty.

“It’s all this uncertainty we’re looking at,” said Toronto-Dominion Bank CEO Bharat Masrani when asked by BNN Bloomberg what the biggest risk is to his bank’s Canadian business. “The more certainty we can create in the economy, the better off we are,” said Masrani. (Source: “Toronto-Dominion CEO Says ‘Uncertainty’ Is Canada’s Biggest Risk,” Bloomberg, May 25, 2018.)

With so many balls in the air in the Canadian economy, there’s a chance that any one of them will be sent awry and impact the whole country.

Should that happen, there’s no chance that pot stocks won’t be affected in one way or another.

Even if these pot stocks were somehow able to totally insulate themselves, a downturn in Canada will hurt disposable income and perhaps temper some of the fervor over marijuana legalization, due to a decrease in discretionary spending.

It’s a roundabout effect, but it will still alter the future of the marijuana market.

Analyst Take

There’s not a whole lot you can do to prevent political upheaval. You can plan for it, but the outcome ultimately rests in the hands of governments, bureaucrats, and luck.

What you can do is be aware of upcoming trade talks, political events, and other key developments—and alter your portfolio accordingly.

The legal marijuana market is, in a lot of ways, a self-contained beast, but it’s not totally impervious to outside political influence.

With 2018 being a year of political upheaval, marijuana investors ought to keep an eye on the news. It may not impact pot stocks today, but it almost certainly will in the long term.