Those who are familiar with my writing know I typically like to examine a marijuana company’s financials, quality of leadership, and growth prospects—as well as the general political momentum behind cannabis legalization (both in the U.S. and globally).
But early 2021 has exposed us to an entirely new market force that every analyst, writer, and economist out there didn’t even know existed: the market power of the meme. And now a pot stock could become the next meme stock, which means we could see an explosion in value in the coming months.
First, here’s a little about what a meme stock is.
Internet memes are essentially highly shareable images, texts, or videos that are almost always comedic in nature. A meme is defined by its ability to go viral—in other words, by how many people know of it and continue to pass it on.
GameStop Stock: a Recap
If you’ve been paying even the slightest bit of attention to the stock market, you’ve no doubt been aware of the GameStop Corp. (NYSE:GME) fiasco.
For a recap, a group of Redditors (people who spend a lot of time on the social media platform “Reddit”) were persuaded to purchase immense sums of GME stock after they found out that several hedge funds held large short positions in the company. (Source: “Suck It, Wall Street,” TK News by Matt Taibbi, January 28, 2021.)
The Redditors believed the shorting was an artificial deflation of the company’s value, so they began bulk investing in GameStop stock, sending its share price through the roof.
GME stock went up by more than 2,000% at one point, crushing many funds that had large short positions (and making a good bit of money for many other investors).
Early investors saw huge returns on their purchases while latecomers were burned by the volatility. The financial world, meanwhile, had a collective aneurysm as concerns grew that Internet denizens could artificially manipulate the market, driving share prices up or down irrespective of the company’s intrinsic value.
The counterargument was that hedge funds had been doing the exact same thing for decades, but I won’t get into that here.
Instead, here’s an important thing marijuana stock investors should note: a retail stock with high visibility (many of the Redditors claimed to have bought GameStop stock because they had been patrons of the video game retailer in the past) garnered a huge, essentially cult following that drove its share price to the moon. To this day, we continue to see volatile fluctuations in GME stock.
We’ve even had congressional hearings regarding the whole fiasco. One Redditor who was considered to be among the leaders of the GameStop stock run, Keith Gill, went before the House Financial Services Committee and delivered some hilarious statements.
“A few things I am not: I am not a cat. I am not an institutional investor. Nor am I a hedge fund,” said Gill as he began his testimony. The “cat” disclaimer was a reference to his “YouTube” name, Roaring Kitty (and to an unrelated viral video). (Source: “‘I Am Not A Cat … I Am Not A Hedge Fund’: Trader Roaring Kitty Tells Congress,” NPR, February 18, 2021.)
There are still many questions regarding the GME stock run, particularly on “Robinhood” and other trading platforms that halted trading of the stock at key moments, but the end result is that we have a reshaped market landscape in 2021. It’s a landscape where a group of online investors can radically alter the future of a particular stock (or group of stocks).
Future Potential of Pot Stocks
And that brings us to the opportunity in weed stocks.
While there’s yet to be movement on marijuana stocks in any meaningful way by the Reddit investing community, there’s actually a lot about the marijuana sector that would appeal to them.
First, it’s a visible industry with a consumer product.
Second, it’s an industry that has, for as long as it has been legal, had a number of skeptics who have bet short on a variety of stocks. While hedge funds have largely steered clear of pot stocks due to the federal U.S. prohibition, ultimately there are a few analysts who have been doubtful about the market’s potential, which could potentially rile up the Internet folks.
The most important part: there’s a lot of potential locked within weed stocks. Even a brief analysis of the market shows there are billions of dollars yet to be made from it.
With all those factors coming together, I’d argue that there’s a better-than-zero chance that marijuana stocks could become the next meme stocks. And if they do, we can expect volatility to increase wildly.
The stock market has never been more unpredictable than it is now.
During the course of the global COVID-19 pandemic, when production and spending the world over has been dramatically impeded, we’ve still seen record gains from stocks.
Add to the volatile mix a group of Internet retail investors who’ve already flexed their muscles once to great effect, and we have a market where just about anything is possible.
While I don’t know if pot stocks will be the next target of Internet retail investors, it does appear that they could be. If that’s the case, get ready for turmoil, but early investors would likely thank their lucky stars because it would mean that weed stocks would quickly soar.