It seems like pot stocks thrive the closer we get to the new year. We saw a late-stage surge in 2019, and the same thing is happening again.
Of course, I don’t have to tell you that 2019 and 2020 are very different years. But here’s what I can tell you about cannabis stocks going into 2021: the gains are just getting started.
To get where I’m coming from, you need to understand what catalyzed the rally in the first place. As seen in the following chart, the pot stock rally only got into full swing recently. For much of this year, marijuana stocks were flagging.
Chart courtesy of StockCharts.com
During the COVID-19 pandemic, the stock market has been painful for marijuana bulls—which is strange. After all, alcohol sales have historically increased, not decreased, during major economic crises. And it seemed that this trend has held true for marijuana.
Canada saw legal cannabis sales climb 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 11, 2020.)
Colorado also saw a major spike in marijuana sales, topping $1.1 billion between March and August. (Source: “Colorado Marijuana Sales Top $1 Billion Since Pandemic Began,” Westword, October 12, 2020.)
From an economics perspective, it didn’t really make sense that investors were fleeing pot stocks, considering that sales of vice goods typically surge during recessions.
But the stock market isn’t all about logic and math; a lot of it has to do with human behavior. And in this case, human behavior was that people were afraid and wanted to feel safe again.
In the stock market, that typically means fleeing emergent industries that are volatile during good economic climates, let alone disaster-level events that 2020 brought.
The result was that cannabis stocks saw their values plunge for a good deal of 2020. But those of us who knew better understood that it was only a matter of time before marijuana stocks would surge back.
And that’s what we’ve been seeing recently.
They’ve been coming back because of the great sales numbers, yes, but another major factor is political victories.
Now, President-elect Joe Biden is no friend to the marijuana industry; he’s made that abundantly clear. The most regressive Democratic Party leader on the issue of pot, it’s a shame for legalization supporters that he emerged on top in the Democratic Party presidential primary.
But even anti-marijuana Biden is better than President Donald Trump when it comes to pot stocks.
Why? Because many of the people within Biden’s inner circle (and soon-to-be cabinet) are supporters of federal U.S. marijuana legalization.
Kamala Harris, the vice president-elect, ran in the Democratic Party primary as being pro-legalization. Now she sits one 78-year-old heartbeat away from the Oval Office.
What’s more, you can imagine that Harris will have some influence on Biden as time goes on. Who knows? Maybe Biden will evolve on the issue of pot legalization the same way he evolved on gay marriage when he was vice president under Barack Obama.
Another important thing to note is that Biden is rumored to be only seeking a single term in office, which means that Harris, or whoever the Democratic Party puts forward to succeed him, is more than likely to be a supporter of U.S. marijuana legalization.
This means the timeline for marijuana legalization is rapidly contracting and we could bear witness to federal U.S. marijuana legalization in the next few years. As you’d expect, that would increase the value of the marijuana market exponentially.
Furthermore, there’s work being done at the congressional level to get some pro-marijuana legislation passed.
The House passed the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act). If passed by the Senate, the legislation would decriminalize cannabis and clear the way to erase nonviolent federal marijuana convictions. (Source: “House Passes Historic Bill to Decriminalize Cannabis,” NBC News, December 4, 2020.)
Our current do-nothing legislative branch, however, is unlikely to pass anything that hits the Senate floor, but the very fact that this bill was passed in the House is astounding and a good sign of things to come.
Note that the marijuana legalization issue in the U.S. isn’t just a Democrat vs. Republican divide; many people on both sides of the aisle support legalization.
As such, there’s always hope (however slim) of some Republican senators defecting from the general party line and voting to move the MORE Act through. It’s a pipe dream, but not outside the realm of possibility.
CGC Stock, APHA Stock, & ACB Stock Soar
Meanwhile, Canopy Growth Corp (NASDAQ:CGC), Aphria Inc (NASDAQ:APHA), Aurora Cannabis Inc (NYSE:ACB) and many other cannabis stocks have been soaring, and will continue to soar as political momentum builds behind pot legalization in the U.S.
Of those three marijuana stocks mentioned above, CGC stock and APHA stock are both likely to see gains in the short term, but ACB stock has a lot of potential.
That’s because Canopy Growth stock and Aphria stock have undergone massive surges, while Aurora Cannabis stock’s surge has been relatively muted. That means a bigger spike is possible.
At the same time, that makes ACB stock the most volatile. Investors could begin to view the company as weak, compared to its rivals, and therefore disregard the stock.
On the flip side, CGC stock, being the industry standard-bearer, is the safest bet among the three pot stocks to see steady gains moving into 2021.
As mentioned earlier, cannabis stocks have been seeing huge gains recently. And those gains could get much, much bigger in the coming year or so, depending on what happens in American politics.
Marijuana stocks could easily double—or even triple—in value in 2021 if Biden does something as simple as decriminalize marijuana (it would only need a stroke of his pen on an executive order). That move alone would radically alter the face of the marijuana market.
If you want to play the long game on pot stocks and potentially get in on some massive gains that are likely to occur within the next five to 10 years, now could be a great time to think about investing.