November Could Radically Shake Up Pot Stocks & Send Them Surging
The Politics of Marijuana Stocks
One thing about the marijuana industry and pot stocks is that their fortunes are very much tied to politics. While political developments can have a bearing on any industry, when it comes to marijuana stocks, politics can at times be the biggest factor. Legalization, after all, is a political process.
With that in mind, November may see one of the biggest pro-marijuana swings we’ve ever witnessed in the United States.
Now, this isn’t a politics web site, and none of our evaluations are made on political grounds. Instead, we purely view things through the lens of what would be best for the stocks we cover. And, in that regard, a Democratic Party victory would absolutely be the best outcome for the growth of pot stocks.
Again, whatever your political leanings, it’s almost impossible to argue that Donald Trump’s presidency has been a positive force for the weed industry. That’s because, right from the outset, Trump has put officials in his cabinet who have deep and long-standing animosity toward marijuana.
It all started with his first attorney general (AG), Jeff Sessions. Sessions was an infamous anti-drug crusader who believed that cannabis ought to remain banned indefinitely.
Currently, millions of people in the U.S. are able to access marijuana legally via state-level legalization, yet federally, these states’ laws are technically invalid. This has created an uncomfortable system wherein the federal government holds a sword over the heads of marijuana businesses operating within weed-legal states, able to strike down whenever it sees fit.
That has created a wave of concern regarding a federal marijuana crackdown that, if it had actually happened, could have set marijuana stocks back years in the U.S., perhaps even decades.
Fortunately, the federal crackdown has not happened. Sessions never developed into the threat to the marijuana market that he could have been. For many (myself included), a collective sigh of relief was let out.
But that sigh of relief was premature. We’re now learning that the current AG, William Barr, has been arguably worse for pot stocks, just doing so behind the scenes.
Barr, I’d argue, has been among the most heavily scrutinized AGs in recent U.S. history, but much of that scrutiny had to do directly with the president and his personal dealings. Little news came out about Barr’s animus toward marijuana—until now.
A whistleblower is now claiming that Barr used his position as AG to direct improper antitrust reviews of marijuana industry mergers. (Source: “Whistleblower: Barr Directed Faulty Antitrust Reviews of Marijuana Mergers,” Axios, June 24, 2020.)
The whistleblower, a career Department of Justice (DOJ) official named John Elias, was scheduled to testify on June 24 in regards to Barr’s improper use of his power as head of the DOJ, the top law enforcement body in the land.
Elias joined the DOJ in 2006 and is currently the “Antitrust Division” prosecutor. He’s claiming that Barr directed investigations into mergers in the marijuana industry that were improper, due to the companies’ small sizes, and motivated by to Barr’s views against cannabis.
In his opening statement, Elias said,
At the direction of Attorney General Barr, the Antitrust Division launched ten full-scale reviews of merger activity taking place in the marijuana, or cannabis, industry. These mergers involve companies with low market shares in a fragmented industry; they do not meet established criteria for antitrust investigations.
“The rationale for doing so centered not on an antitrust analysis, but because [Barr] did not like the nature of their underlying business.” (Source: Ibid.)
Elias says that, in fiscal 2019, marijuana-related investigations accounted for 29% of full-review merger investigations. Considering the size of the marijuana market relative to the greater stock market, that is a gross over-focus.
The mergers in question that were investigated were similarly piddly. One investigation was into a merger that would have resulted in a combined market share of 0.35%. In other mergers, the companies were in different geographical locations and therefore not in direct competition.
Medmen Enterprises Inc (OTCMKTS:MMNFF, CNSX:MMEN) was among those being investigated.
With this new information in hand, it’s safe to say that there is far less concern that a Democratic Party president would appoint an AG interested in attacking the marijuana industry with such gusto.
Pot Stocks’ Future Looks Strong
The thing is, marijuana stocks are better positioned than ever to see huge gains.
The first reason is that we’re now likely clear of the coronavirus panic. Which isn’t to say that more bumps aren’t likely (especially if we see another surge), but considering how quickly the market rebounded from the last COVID-19-related downturn, I anticipate that investors this time around won’t be as quick to sell.
But, as explained above, perhaps the biggest change to the marijuana market could be a new federal government coming in. Right now, polls have Trump down significantly across the country. Now, polls have been wrong before (especially regarding Trump), but taken at face value, things are looking dire for the sitting commander-in-chief.
To be fair, it’s not like Joe Biden, the presumptive Democratic Party presidential nominee, is a stalwart of the pot industry. Far from it; much better to have had virtually any other presidential hopeful win the Democratic nomination, as they all have better positions regarding U.S. marijuana legalization than Biden.
Biden’s view, at this moment, is the tired old “we need more research” punt that essentially means he’ll do little to advance the cause of cannabis legalization should he become president.
Still, with Biden, there would be little chance of the DOJ abuse we’re seeing in the Trump administration as it relates to the marijuana market. There’s simply no will for that in the Democratic Party, while the Republican Party remains the anti-drug wing of the American political divide.
What’s more, Biden has floated a few interesting vice-presidential picks that could radically alter the future of the U.S. marijuana market.
Now, bear with me as we’re going to dive into a lot of hypotheticals, but there’s a very interesting scenario that could play out (and make marijuana investors tons of money).
The first is that Biden is old, 77 years old in fact. Biden himself has referenced his age when talking about his VP pick, saying that, in his case more than others, it would be a very important one. What’s more, Biden has also floated the idea that, even if he were to win, he may end up being a one-term president, choosing not to run for a second term.
Now again, all hypotheticals here, but if Biden were not to run for a second term (provided he even wins in November), or if he were unable to complete his duty as president and had to step down for health reasons, the vice-president would instantly be thrust onto the national stage. Whether running in 2024 or assuming power before then, the VP could end up leading the country sooner rather than later.
And that brings us to some of Biden’s more interesting VP considerations.
One of them, Senator Kamala Harris, would be an interesting pick for precisely this reason. When Harris was running for president, she came out as pro-marijuana-legalization.
Now, that flies in the face of her record as California’s AG, but let’s say she’s evolved on these issues and that this evolution is permanent. We could have, if everything goes accordingly, a pro-legalization president within one to four years.
And even if Biden doesn’t choose a pro-legalization VP but steps down in 2024, the next presidential nominee from the Democratic Party would more than likely be a pro-legalization politician, as that is the way the political wind is blowing among Democrats (Biden being one of the final outliers).
Which is to say that the outlook for federal U.S. marijuana legalization (which I put as anywhere between five to 15 years away) could be radically accelerated in a best-case scenario. And in that best-case scenario, we can expect to see marijuana stocks soar in value.
Now, this isn’t a certainty. I’d put the odds at about 50% that Biden doesn’t run for a second term should he win the presidency (the job of president is hard to resist for politicians, after all).
But it’s still a very plausible outcome, and one that would help bolster marijuana stocks immensely. Those playing the long game, then, might do well to invest now while pot stock prices are low and potentially reap huge rewards (we’re talking exponential growth many times over) in the coming years.
And it’s not like the current projection for marijuana stocks is all that bad, either. Pot stocks have been on a strong recovery streak as of late.
Chart courtesy of StockCharts.com
I anticipate that the trend on the chart above is only the beginning, and that we could see marijuana stocks grow both in the short and long terms, making cannabis one of the strongest industries around right now.
Pot stocks are looking particularly strong right now as they net huge gains in the wake of the coronavirus downturn.
But even looking beyond the economic recovery, there is huge potential in the U.S. market for marijuana stocks to see massive growth in the next few years. We’re talking gains of hundreds, maybe even thousands of percent.
Considering that federal U.S. marijuana legalization could result in the most significant rush for pot stocks that we will ever see, being able to anticipate this event and invest accordingly could be one of the best plays, not just in the marijuana market, but in the entire stock market.