Is the Marijuana Market Building Toward a Major Rally?

Positive Signs Building for Marijuana Industry & Pot Stocks

The marijuana industry has been anything but predictable in 2021. We’ve seen rapid shifts in momentum due to mergers, legalization efforts (and roadblocks), COVID-19 lockdowns, COVID-19 vaccine rollouts, and more.

In other words, it’s been a lot. But the signs, long-term at least, are very positive for marijuana stocks.

The first reason for this is that COVID-19 and the related lockdowns and economic strains are bound to be sorted out eventually. While I may have been a bit overly optimistic at the beginning of the summer, before the Delta variant became everyone’s least favorite two words, there’s light at the end of the tunnel.

Vaccination rates are high, hospitalization rates are lower than they were at the height of the pandemic, and deaths are down. So, even with the Delta variant, things are better (even if it sometimes doesn’t feel that way).

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Nevertheless, as I’ve written previously, few markets have been as heavily damaged as the marijuana market.

There are a few reasons for that.

The first is that, as an emergent sector, the marijuana industry is prone to volatility. In times of economic strife, investors seek out safe-haven investments and avoid highly volatile ones. That has been a huge detriment to pot-stock momentum.

Next, we had the interruption of supply chains. While marijuana was considered an essential good in Canada, that didn’t stop many companies from shedding workers and closing down production at a number of sites in order to prevent the spread of COVID-19.

What’s more, shipping and storage have been more difficult during the pandemic, which also impacted marijuana companies’ bottom lines.

Another huge challenge was that, during the pandemic, it made sense that Congress would let the marijuana legalization issue fall somewhat to the wayside. After all, the famously ineffective branch of the U.S. government isn’t really able to deal with one thing at once, let alone multiple issues.

This hurt some of the U.S. marijuana legalization momentum that built up during the presidential primaries (during which many Democratic Party candidates expressed unequivocal support for U.S. pot legalization).

All those factors combined to impact the marijuana industry, and not for the better. Despite all these issues, the industry has managed to impress. Better yet, it looks poised to see even greater gains in the future.

That’s because marijuana stocks remain some of the most promising—if not the most promising—equities available.

Why? Because the marijuana industry continues to see impressive expansion.

In the U.S., the push for federal pot legalization has slowed somewhat, but that hasn’t put a damper on the excitement surrounding many of the top U.S. pot stocks.

In particular, Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) and Innovative Industrial Properties Inc (NYSE:IIPR) have seen significant share-price growth over the past 12 months.

Chart courtesy of StockCharts.com

IIPR stock has been especially impressive, more than doubling in value over the past year. Considering all the forces working against it (which I outlined above), that’s a noteworthy achievement.

What this tells us is that growth is still possible, even during some of the worst sets of circumstances. After all, a once-in-a-century pandemic isn’t something any company is prepared for, nor something it can effectively predict. This is especially detrimental to emergent industries, as I explained above, so it really has been a worst-case scenario in many respects.

Given these conditions, Innovative Industrial Properties stock’s growth is a great indicator of future success in the marijuana industry and a sign of its ability to weather storms.

What’s more, remember there was a massive overcorrection to marijuana stocks in the early stage of the pandemic. That happened across the stock market as panic took hold, but it was especially pronounced in the marijuana market.

Now that the fears have subsided (even if lockdowns return, we all have a basic understanding of what that entails, and won’t again treat it as a “sky is falling” event), we’re seeing pot stocks begin to recuperate from their losses.

Given that we’ve seen this play out before—the stock market sends share prices tanking, only to turn around and spur massive growth among marijuana stocks—the opportunity exists to invest on the upswing and see high returns in a short amount of time.

But that’s a short-term play, and one I believe is myopic. That’s because the real value in the marijuana market lies in its future.

Yes, the pandemic feels like it will go on forever, but we know that’s not true. It will pass. Like all troubling events in human history, it will come to an end, and on the other side, we can expect to see optimism and excitement in the stock market.

The marijuana industry is one of the most exciting industries out there—even more so, considering that federal U.S. legalization isn’t quite around the corner. That means there’s still a good amount of time to invest in advance of what will surely come down the pike eventually.

That gives investors the opportunity to reap huge gains when nationwide American marijuana legalization finally lands.

Analyst Take

Resiliency is the word of the day for pot stocks.

They’ve taken COVID-19’s worst blows and haven’t gone down for the count. As the pandemic fight nears its final rounds, it’s looking more and more like things are going marijuana stocks’ way.

That’s because all the pre-pandemic momentum and potential are still there. Yes, they’ve been on the backburner during the pandemic, but once the pandemic subsides, we’ll see all that positivity return with a vengeance, likely sending pot stock prices soaring.

Better yet, the marijuana market continues to have one of the best long-term outlooks of any industry, with marijuana stocks looking like they will be among the best-performing investments for years to come.