2021 could be the best year yet for pot stocks.
It’s a tall order, I know. And I’m not closed to the possibility that, in 2021, marijuana stocks may not experience the best year on record, even if they do surge.
But there’s a lot to be excited about.
First and most important is revenue. As with all industries in the stock market, investors and analysts spend most of their time thinking about revenue and profitability.
Nevertheless, companies that show no profitability can be still be immensely successful by promising future profitability, alongside growing revenue. In other words, it’s okay for a company to lose money (for a time), so long it has a clear path toward profitability and it makes progress toward that goal quarter after quarter.
We’ve seen a good number of marijuana companies gravitate toward profitability. The most obvious move that comes to mind was the firing of Bruce Linton from his position as CEO of Canopy Growth Corp (NYSE:CGC), a company he founded and raised to prominence as the industry standard-bearer.
Linton’s firing by shareholders was largely seen as a move to edge the company away from expansion and more toward profitability, something that was further cemented by its recent layoffs. (Source: “Cannabis Company Canopy Growth to Close 5 Sites, Lay Off 220 people,” CBC, December 9, 2020.)
With that in mind, it’s easy to see how 2021 could be a banner year for pot stocks.
Consider this: the fight for U.S. marijuana legalization continues strong, with several states having voted in the November election to legalize the drug. Moreover, many of those state laws were set to be enacted in 2021, so this year we have what amounts to a massive potential surge in marijuana revenues across the country.
Arizona already legalized recreational pot in November 2020, and both Montana and New Jersey legalized pot on January 1, 2021. To be fair, Montana won’t allow commercial sales until 2022, and New Jersey still has a few technical issues to work out. (Source: “Legal Marijuana, Paid Sick Leave, and More: 5 Laws and Regulations Taking Effect Jan. 1,” Yahoo! Finance, December 31, 2020.)
Mississippi also voted in November to legalize medical marijuana, while South Dakota voted to legalize both recreational and medical pot but faces a legal challenge by the state’s governor.
So no, we’re not going to see millions of dollars flood into marijuana stocks overnight just because the year has changed. But what we will see is a steady buildup of pot revenue from across the country as U.S. marijuana legalization spreads.
What that signals to investors and analysts is that the pot market is getting hotter.
Note that institutional investors almost never invest in what a company does today. Rather, they focus on what a company can do tomorrow. In this case, we’re seeing a rapid and unwavering stride toward increased profitability from pot companies.
As more states legalize pot, the financial numbers will keep going up, which will be visible in the quarterly reports of publicly traded pot stocks (ones that have operations in those states, that is).
But even for the marijuana companies that don’t have stakes in the new states coming into the fold, by virtue of the overall marijuana market getting larger, investors will again be excited about what marijuana stocks can offer.
It’s worth mentioning that, just because a marijuana company doesn’t have a position in a specific U.S. state right now, it doesn’t mean it can’t acquire a smaller, private pot company in that state later on.
In our age of mass mergers and consolidations, it would be ludicrous to think that the marijuana sector would be any different. In other words, eventually we’re going to see major players buy up smaller competitors.
We’ve already seen that play out in the Canadian pot market. In fact, it’s probable that the top Canadian marijuana companies seen in the chart below will be among the buyers of smaller pot companies when the U.S. marijuana market fully opens.
Chart courtesy of StockCharts.com
Which is all to say that the future is exceedingly bright for pot stocks in 2021. The excitement is just about natural, predictable growth. It doesn’t even figure in the major boost that a massive legislative breakthrough in the U.S. would create.
It’s hard not to be excited about what 2021 could hold for marijuana stocks.
We’re on the cusp of a major breakout event: federal U.S. marijuana legalization. While we’re likely still a few years away from that eventuality, investing in pot stocks early, before the rush, has the potential for huge gains.
What’s more, we can easily predict that marijuana revenue will continue to stream in from across the U.S. as more and more states legalize the drug—all the while keeping the market at a nice and spicy simmer.
With that, we can expect to see institutional investors pour in more capital, which in turn will drag in the retail investors, which in turn will lead to gains all around from marijuana stocks.
Betting on the future of the pot industry has rarely been a bad idea for long-term investors. Sure, day traders have been burned, and those looking for a quick payout have at times fallen flat on their faces, but for investors who got in early and stayed in through the ups and downs, the rewards have been exponential.
It’s looking to me like that kind of opportunity has come again.