Canadian vs. U.S. Pot Stocks: What They Have in Common & Where They Diverge

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Are U.S. Pot Stocks or Canadian Pot Stocks Right for You?

There’s a bit of a false dichotomy in the marijuana industry between U.S. pot stocks and Canadian pot stocks. It’s false in the sense that both varieties of marijuana stocks can thrive in the developing market.

On the flip side, there’s some validity to the dichotomy, in that the two types of weed stocks behave somewhat differently.

Allow me to explain.

Let’s start with the easy stuff: what U.S. marijuana stocks and Canadian marijuana stocks have in common.

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Commonalities Between U.S. Marijuana Stocks & Canadian Marijuana Stocks

U.S. pot stocks and Canadian pot stocks are both based in the legal cannabis industry, of course, which means that, as the market expands (through increased legalization, product diversification, medical innovation, etc.), they’re both going to see significant gains.

But even in this similarity, there are some distinctions.

As it stands, since marijuana companies that operate in Canada are technically in full compliance with the law while marijuana companies that operate in the U.S. are not (they’re in violation of federal U.S. law), Canadian pot stocks see higher gains than U.S. pot stocks when there’s news of additional international markets opening.

That’s because, while in the future, U.S. pot companies will be able to enter those markets and profit, at the moment, they can’t legally move marijuana across state lines, let alone ship it to foreign soil.

Pot companies that operate in the U.S. also can’t store their money at major international banks (due to that money being associated with illicit activities and, therefore, technically vulnerable to being seized by the U.S. government). That restriction applies to any money stored on U.S soil or in banks with U.S. operations—i.e., the largest ones.

Moreover, U.S.-operating marijuana companies would have difficulty moving capital out of the country to acquire assets and other footholds around the globe. That effectively shuts U.S.-based pot companies out of foreign markets (for now).

That issue could be solved, however, if the Secure and Fair Enforcement Banking Act (SAFE Banking Act) gets passed by Congress.

So while that’s a quasi-commonality between U.S. pot stocks and Canadian pot stocks, one thing they definitely share is potential.

With so many markets yet to be explored, both Canada-based and U.S.-based cannabis companies are certain to see explosive growth as the legal pot market opens domestically and globally.

So, massive potential and growth based on market expansion are two things they share in common.

Differences Between U.S. Pot Stocks & Canadian Pot Stocks

The starkest differences between U.S. marijuana stocks and Canadian pot stocks are illustrated in how they react to market news.

U.S. pot stocks, by and large, aren’t all that affected by federal U.S. marijuana legalization news, whereas Canadian pot stocks are. Yeah, I know it’s a little counterintuitive, but bear with me.

The reason for that is pretty simple: Canadian marijuana companies are tapped out of their potential in the Canadian market, at least for now.

Remember that Canadian pot stocks were highly valued when the industry first became legal in the country. They were seen as being at the forefront of the wave of marijuana legalization that’s certain to expand around the world (eventually).

As such, Canada-based pot companies are the most in need of global expansion, as their share prices are simply too high in relation to Canadian pot sales figures to be sufficient in driving further growth. While the market in Canada is by no means fully developed, even if it was, the top Canadian marijuana stocks would still likely outvalue the market.

Canadian pot stocks were being priced on their companies’ potential to expand along with the global marijuana market. That conquest is, of course, being hindered by the slow pace of legalization around the world, but that’s still what many investors are betting on.

U.S. marijuana stocks, meanwhile, like Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF), are essentially free to continue to expand in the U.S. into whatever state has legalized pot.

There are some complications, but by and large, U.S. companies like Curaleaf Holdings Inc have access to many markets that the Canadian companies don’t.

Those markets, I might add, are far more valuable than Canada. California alone is richer and more populous than all of Canada. That means marijuana companies operating within the state have more potential right now to see higher revenue than those operating in Canada.

So while federal U.S. legalization would certainly benefit U.S. pot stocks, as it stands, it’s actually Canadian pot stocks that need that avenue to be opened up so they can access more customers and boost their sales.

U.S. pot stocks, by contrast, can continue to take advantage of the already substantial legal market in the U.S. while each new state-level legalization offers another wonderful opportunity for growth.

That isn’t to say Curaleaf stock and the like won’t immensely benefit from federal marijuana legalization in the U.S. It just means they’re less concerned about the expansion of legalization, while Canadian marijuana stocks essentially need new markets to open up in order to live up to their lofty valuations.

Those are the main distinctions between U.S. pot stocks and Canadian pot stocks.

Chart courtesy of Stockcharts.com

Analyst Take

While there’s no need to choose only one country’s marijuana stocks, it does help to understand what drives gains for both U.S. pot stocks and Canadian pot stocks.

Having said that, for investors who are looking for less volatility and a higher potential for gains, I’d say U.S. marijuana stocks have the better offer at the moment.

On the flip side, many Canadian marijuana stocks are down right now, following the announcement of a federal U.S. pot legalization bill. That actually makes Canadian pot stocks enticing.

That’s because, while they may be overvalued in the Canadian context, they’re certainly not overvalued in the global context. I have a great deal of faith that many Canadian marijuana stocks will rise again in the near future as countries like Mexico and EU members legalize cannabis.

As it stands, Canadian pot stocks are more vulnerable to losses as marijuana legalization slows down globally. U.S. pot stocks, however, still have a great deal of runway left from which to take off, due to the expansive U.S. market and the increase of state-level pot legalization.