What the Market Is Telling Us About Marijuana Stocks & How to Avoid Losses

Conservative Investors: Avoid These Types of Pot Stocks

I can’t think of a more volatile stock market in my lifetime. That’s because we’re basically facing a mini-black swan event pretty much every quarter.

What’s the coronavirus going to do next? This uncertainty has, of course, impacted the future of marijuana stocks, but has it ruined their prospects?

In my view, not at all, but there’s a subset of pot stocks that conservative investors should probably avoid at this moment. And those are the riskier marijuana penny stocks.

Allow me to explain.


If we were to rewind to a few months ago, we would notice that the stock market was awash in optimism—including from me. Vaccination shots were going into arms; COVID-19 deaths and serious infections were down; and it looked like we were finally, finally getting back to normal.

But that was before the term “Delta variant” entered our collective vocabulary and pretty much derailed all that optimistic momentum in the stock market.

As I’ve written several times before, the stock market is especially punishing to more volatile industries during times of economic uncertainty. And that’s exactly what we’re facing here: maximum uncertainty.

The recent U.S. jobs report shows I wasn’t alone in feeling good about the summer’s prospects. But then we witnessed a huge miss on job creation, a testament to the power of the Delta variant of COVID-19 and its ability to upset all our rosy predictions. (Source: “Jobs Report Disappoints — Only 235,000 Positions Added vs. Expectations of 720,000,” CNBC, September 3, 2021.)

It’s worth noting, however, that things aren’t all bad. The Delta variant has certainly thrown a spoke in the wheel, but—as I mentioned earlier—we’ve been seeing a drop in coronavirus deaths and serious infections, especially among the vaccinated population.

That means the gains we made in the summer in terms of reopening the economy are fairly likely to stick around. Sure, some states and countries are flirting with the idea of reinstating lockdowns, but others, like Denmark, have totally eliminated all pandemic-related restrictions. That’s good news for everyone, but especially marijuana stock investors.

Speaking of pot stock investors, they do have cause for concern that this less-than-stellar market is a threat to their holdings. Remember that marijuana stocks took a pretty intense beating when the pandemic first hit, followed by a strong recovery.

And while I’m quite certain that the depression in pot stock prices won’t be nearly as rough as it was when the COVID-19 virus first became a global threat, it will still have an impact.

Which brings me back to what I mentioned earlier: the impact will be hardest felt among pot penny stocks.

For years, marijuana penny stocks have been among the most high-risk, high-reward investments available in the stock market.

After all, the marijuana industry is valued in the dozens of billions of dollars while only a fraction of that potential market is currently legal and in play.

So we have predictable business growth, in the sense that we know it will happen eventually (the “when” is, of course, still undetermined). That predictable business growth has driven huge gains from the right marijuana stocks, many of which started out as pot penny stocks.

But in this current moment, marijuana penny stocks are the most likely stocks to suffer. That’s because, as I wrote at the top, the volatility of the stock market in the time of COVID-19 means that investors will continuously seek out safer investments.

Consider These Types of Marijuana Stocks Instead

Pot stocks, with their tendency to fluctuate radically based on all sorts of factors (politics, production, supply chain, sales, etc.), are decidedly not safe-haven investments. Or at least, pot penny stocks aren’t safe-haven investments. They’re plays designed to yield maximum profits at the cost of high risk.

Long-term plays in the marijuana market, however, continue to look strong.

Chart courtesy of StockCharts.com

Innovative Industrial Properties Inc (NYSE:IIPR), a marijuana stock that has long been on the top of my list, has seen huge gains in the past year, despite the market’s unpredictability.

That’s because the company operates in a very niche sector, leasing out land across the U.S. to pot producers. That means Innovative Industrial Properties Inc is fully legal in the U.S. and is able to list its shares on a major U.S. stock exchange and access banking services that pure-play pot stocks can’t.

Long-term IIPR stock investors have enjoyed huge gains, and I believe that the company still has room yet to grow as the U.S. continues with its piecemeal approach to marijuana legalization.

Another marijuana stock that I’m partial toward is Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF).

The company has shown resilience in the current market despite COVID-19 wreaking havoc. What’s more, much like IIPR stock, CURLF stock has a ton of room yet to grow as the U.S. opens up to legal pot state-by-state.

Moreover, Curaleaf Holdings Inc is poised to become one of the first legal marijuana companies to reach $1.0 billion in yearly revenue, a huge milestone.

It’s worth noting that pot consumption hasn’t been hurt by the coronavirus pandemic—far from it. Much like with alcohol, consumption of marijuana actually tends to go up during economic downturns, with people trying to deal with their calamitous situations any way they can.

This, coupled with the expanding legal pot market, can support sustained growth by pot stocks like CURLF stock.

Analyst Take

Marijuana stocks are certainly in a difficult place right now, to an extent. But that difficulty isn’t applied equally.

Short-term volatile plays like pot penny stocks are still viable (after all, if investors choose the right marijuana penny stocks now, they’ll see the biggest gains), but they’re riskier than ever.

On the flip side, long-term pot stock plays like Innovative Industrial Properties Inc and Curaleaf Holdings Inc are still showing great promise and no sign of slowing down, even during the pandemic.