Weed stocks are part of a volatile, capricious market where shares rise and fall, often without much warning. When things are this liable to swing up and down, that usually means the best method of investing is timing the market just right.
“Buy low, sell high” is the classic, boring, truthful adage. Easier said than done, but what has the past taught us about marijuana stocks that investors can use in the future?
First, we have to go over how things have panned out in 2021 so far.
With the victory of Joe Biden in the 2020 U.S. presidential race, alongside the Democrats taking control of the Senate and House, there was a lot of optimism surrounding the new political wave that was sweeping the nation.
Many thought that, with the new majority, along with the swelling support of the U.S. population for marijuana legalization, there would be some serious moves toward legalization. Unfortunately, that hope proved to be misplaced—at least for now.
President Biden turned out to be true to the word of candidate Biden: he would be no ally to the pro-pot movement.
Which isn’t to say he’s an opponent. And compared to former presidents Donald Trump and Barack Obama (and really, every other modern U.S. president), he’s far more friendly to the idea of marijuana legalization.
The issue is that, when it comes to marijuana legalization, Biden’s views are still behind those of the general population and many members of the Democratic Party (and, it’s worth noting, some Republicans).
That doesn’t mean Biden can’t evolve, or that someone like Vice President Kamala Harris can’t push him a little closer toward marijuana legalization. It does, however, mean that, for the moment, we’re not likely to see pot stocks benefit from serious moves by the federal government.
The rising and falling optimism led to the depressed weed stock market that we’re seeing now, with marijuana stocks largely down across the board in the past month or so.
Chart courtesy of StockCharts.com
These kinds of ebbs and flows are commonplace for pot stocks, but they stand in direct contrast to what took place in 2020.
The exact opposite situation occurred when COVID-19 first hit. When the pandemic arrived, we saw many investors seek refuge in safer industries at first, before flooding into tech stocks as the world gravitated toward an even more digitalized world.
The consequences of that investor abandonment led to depressed weed stock values in 2020—at least to start. But then, as I long predicted, marijuana stocks started to bounce back.
The reason for that bounce was twofold.
The first reason was that pot stocks had been unfairly punished during the pandemic. Sure, supply chains and production facilities were negatively impacted by the pandemic, but the reaction by the stock market was quite an over-correction, considering the promise that weed stocks had then (and continue to have).
The second reason was that marijuana sales, like those of many other “sin goods,” don’t suffer all that much during economic downturns. Quite the opposite, in fact. Sin goods tend to see increased sales during times of intense hardship. And it certainly didn’t hurt that legal cannabis was designated as a necessary good in many places, avoiding business closures that would damage sales.
It’s worth noting that, during this time, the Canadian marijuana industry started to see some real maturation in terms of production efficiencies, trust from customers, and lower prices.
All this combined to make marijuana stocks once again exciting for investors. Together with Biden’s election victory, there’s a recipe for massive gains.
Chart courtesy of StockCharts.com
So what’s the overall lesson here, and how can investors profit?
When market corrections hit, that could be the best time to invest. While there are going to be some prolonged downturns and longer stock-price depressions, the marijuana industry is set for massive growth in the coming years.
Between marijuana legalization around the globe and more efficient production chains, we’re bound to see value and revenue increase, leading to higher profits for pot companies.
What all that translates into is investors looking for opportunities in a down market and pouncing on them. Right now, we have a bit of a down market for pot stocks, and that presents a large opportunity.
To be fair, with the economy in the state it’s currently in, with money being injected into it by the Federal Reserve and interest rates bound to be raised eventually, we could see a longer-than-usual downturn.
But the key to making real gains in the weed stock market is getting in at the bottom and holding through the corrections. It’s what I’ve long advocated.
So what does the future hold for the marijuana market? In all likelihood, the next Democratic president is going to be a marijuana legalization supporter. With that near certainty (there’s no major political figure left in the Democratic Party who is anti-pot), we could see movement on federal U.S. marijuana legalization in a few years.
Marijuana stocks are going through an interesting period right now, with a massive surge being tapered by a disappointed investor base, now that Biden has proven to be a neutral actor when it comes to pot legalization.
But the future still looks bright for pot stocks.
There’s likely going to be a massive spike in share prices when marijuana legalization arrives in another major market. By investing at the bottom of a dip in anticipation of a coming surge, investors have the ability to maximize their profits.
Like so many things, the key to gaining from weed stocks is investing at the right time and having the staying power to weather the storm in order to see the brighter days on the other side.