It wasn’t so long ago that I wrote about Canopy Growth Corp (NYSE:CGC) being the industry leader when it comes to pot stocks. I pointed out that one of the best ways to predict how the marijuana stock market will fare more broadly is to look at CGC stock.
While that’s true, there’s another important development worth watching in the cannabis sector: the rise of Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA).
It’s entirely possible that, by the end of 2020, Curaleaf stock will be the new market trendsetter. If that comes to pass, it could mean good things for U.S. marijuana stocks in general.
A little bit of background is in order.
Canopy Growth stock was, pretty much from day one, the top dog in the legal marijuana industry. It soaked up a lot of media attention and was famous for rapidly expanding around the globe.
Bruce Linton, the company’s co-founder and former CEO, was likely the most recognized man in the cannabis industry. Furthermore, the company gained a reputation for taking big chances when it came to acquisitions and global expansion.
For a long while, you could use CGC stock to predict how well the rest of the pot stock market would do.
Indeed, whenever Canopy Growth stock scored a win, pot investors rejoiced, even if they didn’t own a cent of CGC. That’s because, whenever that stock soared, usually the entire sector followed.
A good example was when alcohol company Constellation Brands, Inc. (NYSE:STZ) made two multi-billion-dollar investments in Canopy Growth. Both times, the entire weed sector was given a healthy shot in the arm, sending shares skyrocketing both times.
But things have since changed at Canopy Growth. Linton, who had a great reputation around the world as a visionary of sorts, almost like the Steve Jobs of pot, was fired from the company he helped found (again, the Steve Jobs metaphor holds).
Linton’s firing came about as the company shifted focus from growth and expansion to short-term profits.
It wasn’t necessarily the wrong move, since it will likely juice share prices in the short term, but as anyone who has been following the marijuana market closely knows, things are just getting started.
There’s so much potential left in the pot market yet to be explored that to focus whole-hog on profits right now is, to many, myopic.
Linton shared a different vision from the profit-now model that the company was being directed towards by the board and that led to his dismissal.
Now CGC stock isn’t by any means a bad investment, but its ceiling has been lowered somewhat due to the company’s shift in focus.
Therefore, there’s an opening for another pot company to step in, and that’s where CURLF stock comes in.
U.S. Pot Stocks on the Rise
I’ve been following Curaleaf stock for a while now, ever since the company announced that it planned to make over $1.0 billion in profit in 2020, which would make it the first legal marijuana company to do so.
On top of that bold projection, Curaleaf is special in that it’s the largest U.S. legal pot company, both in terms of size and presence.
Curaleaf just finished acquiring another cannabis company in the U.S. called Select. (Source: “Curaleaf Completes Acquisition of Select,” Curaleaf Holdings Inc, February 3, 2020.)
“The close of the Select deal is a major milestone in Curaleaf’s history and marks an unprecedented phase of growth for our company,” said Joseph Lusardi, CEO of Curaleaf.
“As we’ve scaled, Curaleaf has pioneered the U.S. cannabis industry, and we’re incredibly excited about the future and our leadership role in it. Our entire organization is focused on accelerating our growth as a combined company with two of the fastest growing cannabis brands in the country.” (Source: Ibid.)
“Leadership” is the operative word here. Alongside this acquisition, Curaleaf has also acquired a preliminary processing license in Utah and just opened the first legal marijuana dispensary in Cape Cod, Massachusetts.
While that’s great for CURLF stock investors, what this also represents is the rise of U.S. pot stocks in general.
The industry has, for years, been dominated by Canadian marijuana stocks. But that’s going to change. It’s simple arithmetic that Canada is a tiny market compared to the U.S. (or Germany, or the U.K., or a great many other larger economies).
While Canadian marijuana stocks will likely remain among the most powerful stocks in the cannabis sector for a long time, there’s massive potential in U.S. marijuana stocks because, well, they’re American; their home base is the largest market in the world.
Sure, the U.S. is still anywhere from one to 10 years away from federal cannabis legalization, but the rise of U.S. marijuana stocks is only getting faster. That’s because many states have opened themselves up to legal marijuana in one form or another, with medical marijuana legal in 33 states and D.C. while recreational pot is permitted in 11 states and D.C.
In other words, there’s already a massive U.S. marijuana market legally open at the state level, even if federal law still prohibits the drug.
What this means is that U.S. marijuana stocks are going to steadily rise as companies take advantage of lucrative markets (California alone is a bigger economy than Canada). We will likely see a massive growth explosion when the U.S. eventually legalizes pot at the federal level.
What we’re witnessing, then, is a changing of the guard, with U.S. pot stocks set to dominate in the next few years.
I can’t say with certainty that Curaleaf will be the largest marijuana stock by valuation in the coming years (there are simply too many variables), but if I had to make a prediction, I would say that CURLF stock will soon outweigh CGC stock in the near future.
And when that happens, we’ll have seen the complete transition from Canadian marijuana stocks being the focus of the industry to U.S. marijuana stocks taking their rightful place.
Both Curaleaf stock and Canopy Growth stock have been up this year, but CURLF stock has jumped higher than CGC stock so far—a trend I anticipate will continue for years to come.
Chart courtesy of StockCharts.com
Beyond Canopy Growth stock and Curaleaf stock, there lie many opportunities for marijuana stock investors.
The first lies in U.S. cannabis stocks that are on the lower end of the price spectrum but are bound to see explosive growth in the coming years as federal legalization approaches.
On top of that, we’re likely to see some big gambits by more established Canadian marijuana companies, likely acquiring (or making large investments in) the U.S. marijuana market. That makes for a great opportunity to grow one’s investment portfolio.
And then, of course, there’s the true long-term opportunity of the cannabis industry: the global market.
It’s unclear which country will be the next to legalize pot, but the U.S. is very close to that eventuality.
If the U.S. becomes the second major economy to legalize marijuana (the first, of course, being Canada), then we could expect U.S. marijuana stocks to almost immediately become the most powerful players in the industry
That’s barring any major forays into the market—or other moves like acquisitions—that would allow Canadian marijuana stocks to remain the biggest players.
Once U.S. pot stocks carve out their place in the industry, they will likely be flooded with cash, allowing companies to take advantage of other market expansions, such as legalization in Germany.
The future of the marijuana industry lies in the United States.
U.S. federal pot legalization would immediately send share prices soaring across the board, while also opening the door for a number of U.S. marijuana stocks to rise up and challenge Canadian stocks for dominance.
Considering that many Canadian pot companies are now more concerned with profits than expansion, I believe the door is wide open for ambitious U.S. marijuana companies to take advantage of the situation and wrestle control of the marijuana industry away from the big Canadian players.
If that happens, many American marijuana stocks will crop up and see massive growth in both the short and long terms.
Between high revenue leading to strong profits, and the opportunity to expand around the globe as legalization hits European countries, there are few limits on how high U.S. pot stocks can go. As such, it looks like American pot stocks are poised to be the next leaders of the industry.