Are Pot Stock Investors Better Served Focusing on Europe or the U.S.?
For many marijuana stock investors, there are some hard decisions to be made. With pot stocks proliferating, the options available to investors are myriad.
But how can investors know which marijuana stocks are destined for big gains and which ones are doomed to be busts? That’s the eternal question. But there is a good way of discerning a good pot stock from a bad pot stock: where the company is based.
I’ve been writing about the marijuana industry for a long time, since back when it was just being legalized in Canada. Over the years, I’ve noticed that, generally, the most successful marijuana stocks are those of companies that see the marijuana industry for what it truly is: one of the greatest growth opportunities in this century.
The pot stocks of companies that have looked to aggressively expand into new markets have typically fared very well, while the stocks of more conservative pot companies have struggled.
With so many markets to choose from, is there a difference between a company that decides to expand into the European marijuana market vs. the U.S. marijuana market? And if there is a difference, which type of marijuana stock shows more promise for investors?
The answer is a little complicated, but the short version is that pot stocks that are based in the U.S. have seen explosions in value, and I believe that this is where investors’ money will serve them best.
Which isn’t to say European pot markets don’t also carry great promise. The issue, however, is that European countries are smaller compared to the U.S.—and the U.S. is in a special position that makes its marijuana stocks so well suited to gain.
Allow me to explain.
While the European Union (EU) could influence marijuana legalization on the continent, the institution simply doesn’t have the ability to override its member states’ sovereignty to the point where it could decree that pot is suddenly legal in every EU country.
Therefore, we’re more likely to see incremental marijuana legalization in Europe. One country may legalize medical pot and another may go whole hog and legalize all types of marijuana, but at the end of the day, they will represent rather small steps. That’s unless a major country like Germany or the U.K. were to legalize marijuana.
The U.S., in contrast, is in a unique situation. Due to the legal quagmire whereby marijuana is illegal at the federal level but legal in several states—including the largest legal marijuana market on Earth (California)—U.S. pot stocks have a lot of opportunities to expand.
You see, each state is essentially operating as a mini-country when it comes to marijuana laws. Some have legalized all consumption, others have only legalized medical cannabis, and others still bar the drug.
But the momentum is behind legalization.
Chart courtesy of StockCharts.com
From New York to California to Illinois, marijuana is now legally available in many of the most populous states. And each time another state legalizes pot, it provides the opportunity for one of the larger U.S. marijuana stocks to rise in price.
So, what U.S. pot stocks have is a situation wherein they can experience mini-boosts every time a new state opens up to legal marijuana.
Furthermore, U.S.-based companies have access to the most lucrative pot markets on Earth (sorry, Canada) in California, New York, and other populous states. So they’re able to access the richest marijuana markets while pretty much going unchallenged when it comes to expansion into other states.
Due to the federal prohibition, foreign marijuana companies are essentially banned from taking part in the U.S. pot market. Moreover, companies that sell marijuana cannot list on either of the two major U.S. stock exchanges. That deters and outright prevents many of the industry’s most well-known names from getting in on the action.
This has created a protected domestic market, where U.S. pot companies are left unperturbed by rivals from Canada and around the globe while they expand into each new state that legalizes the drug.
This protected ecosystem has created many fast-growing U.S. marijuana stocks. Three U.S. pot companies look like they will crest $1.0 billion in revenue this year.
And that, my friends, is why I would favor investing in U.S. pot stocks over investing in European pot stocks.
The legal situation in the U.S. has created circumstances in which U.S. marijuana stocks can grow without any competition from the outside world. That, in turn, will grant American companies access to the most lucrative marijuana markets far before heavy-hitters from Canada or Europe can get that access.
When the U.S. eventually legalizes marijuana at the federal level, U.S.-based companies will already be chugging along with 10-digit yearly revenue, able to reinvest in new opportunities. They’ll also have established footholds in the U.S. pot market. That will give them a huge advantage over competitors from foreign countries, which will have to start from scratch.
And it goes without saying that there will be a flurry of acquisitions and other deals when the U.S. marijuana market eventually opens up nationwide. That will help spur even greater gains from established U.S. pot stocks.
While the future of the marijuana industry is global—and companies that invest as such are likely to be the most rewarded in the long run—at this time, the marijuana stocks that are shoring up their positions in the U.S. pot market look like the most promising ones to me.
U.S. pot stocks are superbly positioned to benefit from the marijuana industry’s current state for years to come. They’ll benefit even more when federal U.S. pot legalization eventually lands.