Marijuana Stocks Gain Amid Economic Downturn
It’s safe to say that 2020 hasn’t been going like anyone would have expected. That’s precisely why unforeseen events like the COVID-19 pandemic—often called Black Swan events—are so impactful: you simply can’t account for them.
What you can account for, however, is the rebuild. And with pot stocks, we’re already seeing a huge swell of support surround the industry.
Look at the graph below and you’ll see just why I’m so excited.
Chart courtesy of StockCharts.com
As you can see above, many of our favorite marijuana stocks here at Profit Confidential have skyrocketed—just like I said they would before our hiatus.
There are a few reasons we’re seeing huge gains from pot stocks.
The first is the natural progression of an economic downturn. You have the sky-is-falling beginning, which devolves into massive sell-offs, with volatile and emergent industries often being the hardest-hit.
That makes sense: you don’t want to tie up all your money in stocks that are considered unstable in the best of times, let alone when the entire market is on the verge of collapse.
But, as is always the case, the sky did not actually fall, and instead much of the panic selling was an overreaction (another thing I predicted before the break).
What happened next was textbook: people once again began flooding the stock market with money, eager to scoop up what were then considered to be “value buys” due to their drops in price. The marijuana market in particular was considered a choice opportunity.
All this was predictable, and those who followed us at Profit Confidential would have seen the process coming from a mile away. And hopefully, knowing that, they were able to profit from the stocks that I’ve been writing about for years now.
But for those who missed the boat, it’s not too late.
Simply put, the worst of the economic hardship is behind us. Now, don’t misunderstand me. There’s still a good chance that the economy may enter a large recession—or even a depression-level event—if governments and governmental agencies don’t prove to be capable of handling the challenge ahead of them.
And even if they are, I expect that many people around the globe will be facing tough economic times ahead of them.
But, as is usually the unfortunate reality of the stock market, capital and the general state of the average workers’ finances are not as closely linked as you may think. Which is to say that capital will begin to flood back into the markets well before the economy makes a full recovery—not dissimilar to what we saw play out with the Great Recession of 2008.
And much like with the last economic downturn, we can anticipate the gains during the recovery going to those holding stocks and be denied to the average worker (but, alas, that’s a topic for a different time).
In this instance, what you need to know, dear reader, is that a great amount of money could be made in the coming recovery period that is just getting started, and that the marijuana industry/pot stocks are some of the best ways to take advantage of the coming boom.
Pot Stocks on the Rise
The simple fact is that an economic downturn isn’t necessarily a bad thing for the marijuana industry, at least in terms of sales.
You see, in many places, marijuana dispensaries (where the drug is legal, that is) were classified as essential services during the COVID-19 outbreak and were permitted to operate freely while so many other businesses had to shut down.
That means marijuana consumption could potentially hold steady—which in turn would mean steady sales and higher revenue—through continued bouts of the coronavirus, should another lockdown be in store.
What’s more, people sitting at home with nothing to do and little disposable income may turn to marijuana as a cheap way to break up the monotony. I know a good many marijuana enthusiasts who did just that as they sat at home and waited for the economy to reopen.
Anecdotal evidence aside, we have hard numbers supporting the marijuana industry. Namely, vice goods like alcohol and marijuana don’t see sales contract during recessions, but actually tend to see them grow.
During the financial collapse of 2008, alcohol sales climbed despite the rapid drop in both stock market value and personal wealth in the United States. (Source: “Alcohol Sales Thrive in Hard Times,” CNN Money, June 9, 2011.)
“I wouldn’t say it’s recession proof,” said Esther Kwon, an alcohol industry analyst at Standard & Poor’s Financial Services LLC, back in 2011. “People will buy less and they will move to different venues, meaning moving to home instead of a bar. But people will continue to drink, regardless.”
Overall, alcoholic beverage sales jumped by more than nine percent in both 2008 and 2010, and by 10% over the 12-month period ended May 31, 2011. That’s despite unemployment rising during those years.
“These numbers grew almost in spite of the recession,” said Sageworks analyst Sam Zippin, pointing out that medical care was the only other sector to maintain growth during the Great Recession. “Other than going to the doctor, [alcohol] is another need to have.” (Source: Ibid.)
There’s a good chance that marijuana will see similar sales increases in places where it’s legal.
So, in effect, we may actually start seeing strong gains in the near future from pot stocks, both from a natural progression due to economic recovery, but also via increased sales.
What to Watch Out for as a Marijuana Investor
Let’s be honest: it’s not all sunshine and rainbows for marijuana stocks. There are several key obstacles brought on by the COVID-19 pandemic that marijuana investors need to be aware of.
The economic slowdown is not going to leave the marijuana industry totally unscathed. Rather, there are several key areas that will need to adapt in order to take advantage of the opportunity created by the potential recession.
The most important—or at least the most immediate—issue is production.
With governments issuing strict guidelines on manufacturers in order to reduce the COVID-19 spread, marijuana producers will have to find ways to continue operating without putting consumers and workers at risk. Not only is that a moral good, but it will also prevent the government from having to forcibly shut them down.
We’ve seen several production centers slow down or cease altogether for the time being in response to COVID-19. Ideally, marijuana producers will find a way to resume production without putting their workers at risk, which in turn will lead to a larger supply of pot in the event that demand spikes.
Another issue right now is that the political fight for marijuana legalization is taking a backseat at the moment.
While the current discussion about police and their role in American society could potentially steer us toward a nuanced discussion about marijuana legalization as a way to reduce encounters between police and citizens, that is by no means guaranteed.
In fact, I’d say it’s a bit of a long game. As much as we all would love to see politicians do the right and sane thing by legalizing pot throughout the country, at the end of the day, they have bigger fish to fry with COVID-19 and societal tensions running high.
The final snag that marijuana has hit is that Bernie Sanders has dropped out of the race for president. By doing so, we now have no chance of seeing a pro-legalization president take the Oval Office in 2021. While Sanders was always an outside shot, his loss means we’ll be waiting at least another four years until we have another pro-pot presidential candidate.
The one saving grace is that Joe Biden, the presumptive nominee for the Democratic Party, is potentially malleable on the marijuana question, but we shouldn’t hold our breaths.
While this is certainly a time of volatility on the stock market (and that goes double for pot stocks), it’s also a time of great opportunity.
Fortunes have been won during these types of wild swings in the past, and there’s a chance of that happening once more. I believe that, long-term, many marijuana stocks will be extremely valuable as the industry gets up and running post-COVID-19.