Why Investors Should See Opportunity, Not Fear, in the Current Marijuana Stock Downturn

Why Investors Should See Opportunity, Not Fear, in the Current Marijuana Stock Downturn

Marijuana Downturn Provides Opportunity

The past few months in the marijuana industry have been some of the toughest we’ve seen all year. Many of my favorite pot stocks have been battered as of late, giving back a sizable chunk of the impressive gains they’ve made in 2019.

But investors shouldn’t panic. In fact, I believe the recent marijuana downturn provides a perfect time to reinvest and yield bigger gains down the line.

You see, the marijuana industry, like all aspects of the stock market, works on a boom-bust cycle. Investors gain confidence, they pour money in, stocks rise, either confidence begins to wane or some event takes place, investors pull out, share prices fall.

It has happened dozens of times before and will happen dozens of times again.

The difference, of course, is that the marijuana market is rather volatile, so these swings can be a little dramatic and make the softer-hearted among us pale. However, as I’ll illustrate below, every time we’ve seen a pullback, opportunity has followed in its wake.

Chart courtesy of StockCharts.com

Above we see five of my favorite pot stocks performing admirably year-to-date.

Each stock on that list has gained at least 50% since the beginning of the year, and each one is a stock I recommended at the time.

But it’s worth noting what happened in 2018, as the below chart shows:

Chart courtesy of StockCharts.com

Those very same pot companies performed rather weakly in 2018, with some losing value while others showed only moderate gains over the year.

And even on that chart, you can see the up-and-down nature of the industry, with late 2018 yielding huge returns as Canadian marijuana legalization came into effect, and with an expected downturn immediately after.

And, as we saw in 2019, that downturn only ended up creating more gains in the following months.

I don’t want to bore you with charts on top of charts, but I could go back over the past three years I’ve covered the industry and show you how every time one of these pullbacks occurs, there is usually a strong boom time to follow.

As such, marijuana stocks that are currently struggling a bit right now are highly likely to make up those losses in the near future and end up stronger than ever on the other side.

There are, of course, exceptions to the rule. Some companies have specific problems that are exacerbated by these market downturns. Companies like Aphria Inc (NYSE:APHA) and Tilray Inc (NASDAQ:TLRY) faced longer recovery times due to unique issues that those companies had, but even they have begun to show promising signs of comebacks.

Which is a long way of saying don’t panic when faced with a marijuana downturn. Gains are more than likely right around the corner.

Analyst Take

Investors might want to take the current marijuana downturn as an opportunity to buy low while the industry wavers.

I expect that, within the next six to 12 months, we will see another boom for marijuana stocks. Not to mention that factors like global expansion and the expansion of legalization could have a massive positive impact on marijuana stocks.