Marijuana Stock Resiliency
One thing I’ve noticed in 2019 is that marijuana stocks have been—so far, at least—extremely resilient. Whereas in 2018, they were prone to rapid shifts in fortune, that volatility seems to have been replaced by steady and sustained gains.
While this could just be an outlier (and corrections are going to happen eventually, as they do in all industries), this may be the dawn of a new day in the marijuana industry.
You see, the maturation process has been accelerated for pot stocks in 2019. Whereas before they traded largely on potential, we now have the first major revenue stream for these companies begin to flow via Canadian pot legalization.
Sales numbers have swelled, and while it hasn’t been all roses and sunshine in the Canadian market, it has largely been a success.
We’ve seen quarterly reports come in with very strong numbers, leading to big gains among several of our favorite pot stocks at Profit Confidential.
I’ve long supported the marijuana industry, but I think that what has really changed in 2019 is that marijuana stocks have gained resiliency through legitimacy.
In other words, the wide base of support that has developed behind pot has decreased volatility and served to shore up gains.
In 2019, we’ve seen analysts, banks, and politicians support the industry like never before. No longer viewed as an illicit drug to be handled with care, marijuana is increasingly becoming a consumer good not too different than alcohol.
Of course, the laws are still far from catching up, but the overall sentiment on pot has moved considerably.
Every major presidential hopeful from the Democratic Party has supported marijuana reform. While not advocating for full-scale legalization (yet) the group of senators that have been leading the polls—Bernie Sanders, Kamala Harris, Elizabeth Warren, Cory Booker—have all agreed to make marijuana reform a part of their platforms while they look to unseat President Donald Trump.
Trump himself, it’s worth remembering, isn’t all that anti-pot either. That means that for the first time in modern U.S. history, we have both parties running presidential candidates with neutral or positive stances on marijuana.
The growing acceptance on the political side is also spilling over to the institutional side.
Several Wall Street investment banks have begun coverage of the market—and usually being quite bullish.
The few analysts and banks that have long maintained coverage for pot are also fairly bullish across the board.
More recently, we’ve seen Bank of America Corp (NYSE:BAC) begin coverage of pot and endorse one of my personal favorite pot stocks, Hexo Corp (NYSEAMERICAN:HEXO). (Source: “HEXO Is Top Pick as Bank of America Initiates Cannabis Coverage,” TheStreet, April 17, 2019.)
The takeaway is that marijuana has gone mainstream—and has seen huge gains in 2019 as a result.
Chart courtesy of StockCharts.com
As shown in the chart above, the top three picks of mine in the pot industry—HEXO stock, OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) stock, and Canopy Growth Corp (NYSE:CGC) stock—have all seen massive growth to start 2019.
And that’s despite each having faced a setback or two in 2019. Last year, these setbacks were often enough to rock stocks and send them reeling down for days, weeks, and sometimes months. But in 2019, these stocks are now able to bounce back from smaller losses with haste.
OrganiGram stock was subject to one of those setbacks very recently, where its financial report showed losses after a preceding cash-flow positive quarter.
But even with that setback, OGRMF stock took the hit (losing nearly 10% value in a single day) and has bounced back over the past several days with steady, if small, gains.
In the industry’s younger days, such a setback was likely to send the stock reeling for much longer.
Now, we instead have companies that are much more mature and, therefore, much more stable—all while gains continue to pour in, creating a very potent combination.
Marijuana stocks aren’t invulnerable, but they have gained a newfound hardiness that will serve them well in the years to come—and solidifies them as great long-term stocks.