How Canadian Pot Stocks Can Profit From JPMorgan’s Shot at U.S. Pot Stocks
For more than a year, I’ve repeatedly stated that U.S. marijuana stocks are the way of the future. Which isn’t to say that Canadian marijuana stocks are without any value, but rather that the largest long-term gains will be felt by early investors in budding U.S.-based marijuana producers.
But throughout all that time, I’ve always included one caveat: the lack of federal marijuana legalization in the U.S. will hurt American pot stocks. And recently, we’ve seen that reality rear its ugly head.
And this “ugly head” has a name: JPMorgan Chase & Co. (NYSE:JPM).
The behemoth international investment bank recently put a stop to trading shares of U.S. companies that have a “direct nexus to marijuana-related activities” and are not listed on either the Toronto Stock Exchange, New York Stock Exchange, or Nasdaq. (Source: “JPMorgan Chase to Restrict Trading in Some U.S. Cannabis Stocks,” Forbes, November 5, 2021.)
“J.P. Morgan (JPMS) has introduced a framework that is designed to comply with U.S. money laundering laws and regulations by restricting certain activities in the securities of U.S. Marijuana Related Businesses,” wrote the bank in a letter to its clients.
This is a setback the likes of which we haven’t seen in a while. The announcement by JPMorgan Chase & Co. (seemingly out of nowhere) could spell trouble for U.S. marijuana stocks.
One of the major hurdles that pot stocks have to overcome in the U.S., after all, is the ease of investing. The more barriers there are, the more likely investors will just not bother. That’s especially true of retail investors, many of whom are largely unfamiliar with—and potentially distrustful of—over-the-counter stocks.
Another issue at play is the appearance of legitimacy. Marijuana is indeed legal in some parts of the world—and in some U.S. states—but not at the federal level in the U.S.
With American marijuana stocks being jettisoned from JPMorgan Chase & Co.’s list of tradable assets, that not only potentially denies U.S. pot stocks of billions of dollars in investments from the bank’s massive client list, but it also means other companies may follow suit.
What’s worse, JPMorgan’s move may reinforce the erroneous notion that marijuana is still just a street drug masquerading as a legitimate substance, a dire blow in the fight for federal legalization.
Steve Hawkins, CEO of the U.S. Cannabis Council, said “JP Morgan’s move to block its customers from buying securities in fully legal, regulated cannabis companies is beyond disappointing. Publicly traded cannabis companies operate entirely within the law, and the industry is poised for tremendous growth.” (Source: Ibid.)
Hawkins continued, “JPMorgan’s new policy is regressive and at odds with the majority of Americans, who want legal, regulated cannabis. What’s more, it’s self-defeating.”
He added, “The end of federal cannabis prohibition is within [sight], and the industry is already growing rapidly.”
Let me be perfectly clear, this is not the end of U.S. pot stocks. Far from it. I still ardently believe that the future lies in American marijuana stocks that investors can buy today over the counter (just not through JPMorgan Chase & Co. anymore, of course).
But U.S. pot stocks are still high-value investments, even if this new development sets them back a bit.
The optimistic view would be that this could be a spark that lights a fire under the federal administration’s feet to actually do something about the ridiculous legal limbo that marijuana stocks in the U.S. currently inhabit (although I wouldn’t hold my breath).
Canadian Marijuana Stocks to Rise?
In any case, JPMorgan Chase & Co.’s new policy is a problem for American pot stocks, but not a huge one. At the same time, it’s an opportunity for Canadian pot stocks.
While Canadian pot stocks haven’t had a great year on the whole, that doesn’t mean they don’t have extraordinary potential.
The following chart shows a downward trend among three of the top Canadian marijuana stocks, but it also means a rally could come about at any moment. This has been the natural cadence of the marijuana stock market for years, with overreactions both up and down.
Chart courtesy of StockCharts.com
Buying on the dip is a solid way for investors to profit, and holding pot stocks long-term remains a strong play.
Don’t believe me? Look at OrganiGram Holdings Inc (NASDAQ:OGI).
After a high in 2019, OGI stock fell precipitously until early 2021, when it nearly doubled in price in a matter of a few days. For long-time holders of OrganiGram stock, that was the time to see some big returns (depending on when they bought).
And now, OrganiGram stock is up by a whopping 70% year-to-date.
Which is to say that you can never count Canadian marijuana companies out. And with the new concern about JPMorgan’s decision to stop trading certain U.S. marijuana stocks, that could benefit Canadian marijuana stocks, the largest of which are listed on major stock exchanges.
While not a death blow by any means, JPMorgan Chase & Co.’s policy to no longer sell certain U.S. pot stocks is one that will no doubt hurt the value of some stocks.
That said, the potential of both the U.S. and Canadian marijuana markets remains exceptionally strong.