In something I long predicted, pot stocks are back.
While the naysayers were smug concerning the industry’s recent troubles, anyone looking to the future knew that there would be a massive bounce back by cannabis stocks; they’ve done it many times before.
Companies like Canopy Growth Corp (NASDAQ:CGC), Innovative Industrial Properties Inc (NYSE:IIPR), and Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) have seen massive gains in the past few months, and those gains show little sign of slowing down in the near future.
While the industry did start off the year with a poor showing, CGC stock, IIPR stock, and CURLF stock have all shown that this was only a passing issue. There are still enormous gains to be made from the marijuana industry.
Chart courtesy of StockCharts.com
Innovative Industrial Properties stock and Curaleaf stock weren’t as heavily impacted by the COVID-19 pandemic, simply by virtue of being located in the U.S.
The U.S. remains the most important target for the marijuana market. When federal U.S. pot legalization eventually lands (and it is a when at this point, not an if), we’re going to see those marijuana stocks in particular explode in value.
As such, investors haven’t been too concerned about going long on CURLF stock and IIPR stock. CGC stock, however, did have some question marks surrounding it.
With the Canadian marijuana market having opened to less-than-ideal sales numbers (driven by a number of factors, like the continuing success of the black market and the higher costs of legal pot, both of which are being addressed), there was an understandable market correction for Canopy Growth stock.
Among the top performers in the marijuana sector for years now, it looked like Canopy Growth Corp had been overvalued all these years—at least it looked like that to some people.
Others, like myself, were more confident that the industry would bounce back once 1) things settled down in regards to the pandemic and 2) the Democrats regained the White House.
Let’s dissect those two points and understand why they’ve been powering the recent marijuana stock surge.
As far as the pandemic is concerned, marijuana sales haven’t really been affected. In fact, when they have been affected, it has usually been for the better.
Vice sales (alcohol, marijuana, tobacco, etc.) typically increase during times of economic or political strife. Considering that COVID-19 has created strife in virtually every aspect of our lives, it would make sense that marijuana sales would increase.
And that’s just what has happened.
In Canada, legal cannabis sales climbed from $181.2 million in March (when the pandemic-related shutdowns began) to a record $256.3 million in September. (Source: “Retail Trade Sales by Province and Territory (x 1,000),” Statistics Canada, last accessed December 1, 2020.)
Meanwhile, Colorado saw a similar spike in marijuana sales, topping $1.1 billion in March through August. (Source: “Colorado Marijuana Sales Top $1 Billion Since Pandemic Began,” Westword, October 12, 2020.)
These types of gains are being seen across the marijuana market and show that many of investors’ and analysts’ fears were misplaced.
The thing is, emergent industries are usually the first to suffer in times of economic uncertainty. That’s because they’re already volatile during good market conditions. Throw in horrible conditions like mass shutdowns and unemployment and it makes sense why investors would retreat from pot stocks.
At the same time, due to marijuana’s special relationship with economic strife, the pot sector has proved to be the exception this year.
As for the second point, with Joe Biden winning the U.S. presidential election, we’re going to see, well, not a pro-pot president, but certainly a more pot-friendly president.
And Kamala Harris, Biden’s running mate, included marijuana legalization as part of her campaign platform during her unsuccessful bid for the Democratic presidential nomination.
It’s hard to determine just how much sway Harris will have over Biden when he’s president, but there are credible rumors that Biden won’t run for a second term.
If that happens, Harris could be his replacement, meaning we could see a pro-legalization president in the next four years. What’s more, she could effectively legalize marijuana with an executive order on day one, allowing her to circumvent the political deadlock that Congress is famous for.
All that contributes to the growing resurgence of enthusiasm for cannabis stocks. And this isn’t even considering the best-case scenario: Biden legalizing pot himself.
Again, while Biden is not, and has never been, a pro-marijuana politician, there’s strong popular backing for pot legalization across the U.S. and within his own party.
What’s more, Biden has been known to evolve on issues, and we’ve seen predecessors like Barack Obama evolve when things became popular (same-sex marriage, for instance).
In sum, this is a great time to be a pot stock bull. Many of the top marijuana stocks have been surging recently, and are likely to keep surging. Those who bought on the dip are likely celebrating massive gains.
But for those who missed the dip, it’s not too late: pot stocks will keep fluctuating up and down for some time, but going long in the lead-up to the all-but-guaranteed federal U.S. marijuana legalization will likely pay off.