There’s little doubt in my mind that the future of the pot stock market lies in U.S. marijuana stocks. I’ve written about the growth potential in that segment time and time again.
I wouldn’t blame you, dear reader, if you had gotten the impression that Canadian pot stocks, by contrast, were no longer of interest. But that couldn’t be further from the truth. Canadian marijuana stocks still have plenty of potential; they just need to be handled a little more deftly compared to U.S. pot stocks.
The Canadian marijuana market has made many millionaires over the past few years (and even a billionaire or two). It’s that potential for investor profit that led us to create the Marijuana Millionaire newsletter.
But something that you may have noticed is that, over the past two years, the Canadian marijuana market has been less than stellar.
So what happened?
The fervor that was generated by Canadian marijuana legalization had many people licking their chops in 2015, with a deluge of capital hitting the market and sending many Canadian marijuana stocks soaring.
After all, this was the first major economy to federally legalize pot. Investors were right to be excited.
As such, the massive influx of retail investors and overzealous institutional investors sent share prices skyrocketing. We had valuations of Canadian pot stocks that vastly outpaced the projected value of the total Canadian marijuana market. It all looked like smoke and hype—and to some degree, it was just that.
To be fair, the high valuations were technically justifiable because they were tied to global expansion, with Canadian marijuana companies serving as a first step in that globe-spanning plan.
The thing was (and still is), we can’t predict just how fast the global market will open up. Sure, we’ve been seeing legislative progress in countries around the world (not the least of which is the U.S.), but we haven’t seen any country fully legalize pot since Canada made the jump.
As a result, we saw some stagnation in the market as the hype began to wear off. That, in turn, led to a number of corrections among the top Canadian marijuana stocks.
Fast-forward a few years and we’ve had the COVID-19 pandemic to contend with. The pandemic may have not harmed marijuana sales in general (vice sales tend to trend upward during economic downturns and times of strife), but you can bet that the production lines and supply chains were harmed by new guidelines surrounding social distancing.
Adding that to an already volatile market, which some had begun to think was overhyped and overvalued, and we had a recipe for disaster: many Canadian pot stocks experienced huge losses.
But over the past few months, we’ve seen a resurgence by Canadian marijuana stocks.
Chart courtesy of StockCharts.com
So what accounts for the sudden rise in value among Canadian pot stocks?
Well, a number of things.
For one, the United Nations accurately assessed cannabis as a drug that’s not on par with deadly narcotics like heroin. (Source: “UN Commission Reclassifies Cannabis, yet Still Considered Harmful,” UN News, December 2, 2020.)
Moreover, Canadian legal marijuana prices began to fall in line with black-market marijuana prices. That may have encouraged more consumers to switch over to legal weed vendors.
That, in turn, led to an increase in pot sales in 2020. Canada saw legal cannabis sales climb from CA$181.2 million in March (when the pandemic-related shutdowns began) to a record CA$270.0 Million in October. (Source: “Retail Trade Sales by Province and Territory (× 1,000),” Statistics Canada, last accessed January 4, 2021.)
Remember that this wasn’t exactly unexpected, as vice sales typically benefit from economic and social crises, but it was still a boon.
Perhaps the biggest catalyst for the rise was the simple fact that the market had overreacted to the “marijuana stocks are overvalued” line. In other words, the market was not nearly in as bad a shape as people thought. Thus, the dip ended up being an overcorrection, which resulted in the potential for massive gains that we’ve seen lately.
Canopy Growth Corp
Canopy Growth Corp (NYSE:CGC), in particular, is in a very strong position.
Having started the year on a dip, CGC stock has recovered mightily and has regained its position as the top pot stock in the world (at least until U.S. pot stocks can challenge it).
Chart courtesy of StockCharts.com
It hasn’t all been good news, of course. Investors were concerned when the company closed five locations across Canada and laid off roughly 220 employees. (Source: “Cannabis Company Canopy Growth to Close 5 Sites, Lay Off 220 People,” CBC, December 9, 2020.)
The move was meant to save the company between $150.0 and $200.0 million as it aims to accelerate toward profitability. It makes sense to cut back during a time when in-person shopping is at an all-time low.
Long-term, Canopy Growth stock has tremendous upside as it battles back from its overcorrection.
What’s more, Canopy Growth Corp is poised to play a big part in the U.S. marijuana market when the country eventually legalizes marijuana at the federal level, positioning CGC stock for big gains down the line.
The best gains in the pot stock market in the next 10 years are likely to be found among U.S. marijuana stocks. But it’s also true that we’re not done seeing gains from Canadian pot stocks.
Lately we’ve been seeing a rise in value among Canadian marijuana stocks that will likely hold strong in 2021.
In fact, considering that the COVID-19 crisis is expected to be greatly ameliorated in 2021, it’s projected that we’ll see a massive stock market surge all around, which would be a boon to Canadian pot stocks.
Going long on some of the top Canadian marijuana companies might not be a bad call right now, considering what the market has been showing us.