Cannabis Stocks Aren’t Exactly On Fire
Where There’s Smoke
Not even $FIRE is posed to ignite, despite its ticker symbol. Market analysts have been predicting that the legal cannabis industry has been ‘about to blow up’ for what seems like years now, so why hasn’t it? Individual companies have performed well, but year to year there hasn’t been the shocking growth that many speculated would occur after national legalization. Is there something in the way, or did the analysts get something wrong?
Well, the answer gets a little complicated. If there’s one thing all the analysts got wrong, it was probably how quickly the existing black market infrastructure surrounding cannabis could convert into a functioning legal industry. Much of the research and analysis performed and publicized around 2018 is still good data, it was simply optimistic. The sheer hype of widespread legalization turned a lot of heads, and made a lot of money move before it was clear who the major players in the industry would be. Lots of people lost a lot of money on promising start-ups, while others made fortunes investing in companies with little more than a white paper and a lot of weed on hand.
So There’s Fire, Just Not An Explosion
That might be the best way to sum up the state of the industry. Things have started to heat up since we, as a society, collectively told 2020 to go fuck itself. Word of mouth is still overwhelmingly positive, from investors and laymen alike. Lots of people still have big predictions for the cannabis sector in 2021, as the field of players starts to whittle down and we can almost see which few will still be standing at the end. A few strong frontrunners have already emerged, and just this past week marijuana giant Tilray was named one of Time Magazine’s 100 most influential companies.
Analysts are still overwhelmingly adamant that “the cannabis boom is coming;” it’s just been rescheduled a few too many times. Unfortunately, this has led a lot of people to doubt the good data and research provided by the analysts, because they’ve been wrong on the subject before. A degree of confirmation bias has been spread within the ranks of casual investors, and is leading them to view the cannabis sector as more volatile than they did the year before. While that’s certainly fair for the people that might have got burned and lost money, a lot of that negative sentiment about the sector has caused a significant shift in the public’s perception of it. People are a lot less confident in the cannabis industry than they were last year, despite no major legislative changes and despite the industry-wide boom in sales the pandemic has caused.
One factor that might conjure hope amongst investors is the confidence of US Senate majority leader Chuck Schumer, who announced on 4/20 that he’ll be introducing legislation to ensure that cannabis will be decriminalized at the federal level by December. While he’s made similar promises in the past, he plans to unveil his planned legislation in the coming weeks. Despite president Joe Biden’s less committal stance on the issue, the support of senate democrats ensures that any bill they table should at least make it to congress for approval.
Can We Please Not Talk About Politics?
We kinda have to, where this issue is concerned! Cannabis remains a politically charged issue for a lot of people, doubly so when it comes to investing in the industry. Despite marijuana being legal in Canada, many of the companies that started here are looking to the US to dictate their futures. The United States are an enormous market, and by the looks of it, they’re about one step away from opening the floodgates at the border. Canadian legalization was a test run, and a bigger fish is on the hook in 2021. The fact of the matter is that American politics still have a role, if not the biggest role, to play in the future of the North American cannabis industry.
That said, I’ll do my best to keep it from devolving into petty stuff. Really, I just want to point out that the ruling political party in the largest potential market for cannabis and cannabis-related products is currently on the fence regarding federal decriminalization. Polls suggest that the American public has much stronger feelings on the issue, and that as much as 91% of US citizens support federal decriminalization to some extent. Polls as recent as last month suggest that 61% of Americans support the decriminalization of marijuana for medicinal and recreational purposes, with an additional 30% in support of medicinal use only.
Based solely on those statistics, it’s difficult to imagine why America hasn’t moved forward with legalization. Individual states have taken it upon themselves to do so, the most recent example of which was an absolute juggernaut. On March 31st of this year, New York State passed legislation to decriminalize weed for recreational purposes. New York State is among the most liberal, but also among the most wealthy and populous states in the entire nation, and the fact that they’ve gone forward with statewide legalization marks a major turning point in the cannabis culture of the United States as a whole.
Medicinal use of marijuana is currently legal in over half of the States, but recreational use is only legal in 18 of them (Plus Guam and Washington, DC). That’s a little less than half of them, but the list includes a number of the most populous states in the nation. By population, almost half of the United States currently has access to legal recreational marijuana. Even if you assume the 9% of people who disapprove of federal decriminalization all live in those states, that still leaves a whopping 41% of US citizens who want decriminalization but don’t have it in their home state. Meanwhile, we have access to free weed delivery in Canada! What that says to me is that over the next few years, we’ll see that number shrink.
So Which Stocks Should I Buy?
Honestly, I’m not a financial advisor. Lots of people made great bets on companies that published solid early financials, had sensible corporate structures, tons of start-up capital, and were managed by people with relevant experience and drive. Many of those companies still failed, though, and lots of people lost a lot of money in a market that is to this day still figuring itself out. Overall, however, I just want to say that investing in the cannabis industry in 2021 is still viable. There are still a shitload of new companies popping up near every day, many of them fly-by-night operations, but that’s nothing new to the experienced investor. It might be best to look at many of the companies that currently exist within the cannabis industry as ‘penny stocks,’ and treat them more like horses at a racetrack than a sensible long-term investment.
Growth in Canada and states like Colorado has begun to slow as the dispensaries and companies that managed to survive the early booms have had some time to both mature and grow. Grey market companies are also making big pushes to legalize, which could shake up established markets. Most of them can offer better pricing on weed delivery and more varied products than their legal counterparts.
Observers have noted that the biggest booms in overall stock prices tend to happen when a state first chooses to decriminalize, before it falls in line and acts more typically across the board. In states like Washington and Colorado, growth has tapered off and fallen more in line with standard growth patterns of companies outside the cannabis industry. That isn’t to say that there isn’t still money to be made there, of course! Many larger cannabis companies post solid year-over-year growth, and make for great long-term investments. They probably won’t make you rich overnight, but money is money.
That last sentence might make a great tagline for this whole post, actually! In the very recent past, weed stocks were still viewed as a “get rich quick” scheme, or as a highly speculative investment. Now, a few years later, the industry has largely fallen in line with the expectations of the market. Once viewed as a bit of a dark horse in the investment world, cannabis stocks have swiftly made themselves a part of thousands of portfolios, and even snuck their way into the holdings of a few hedge funds and ETFs across both the United States and Canada.
Weed stocks might no longer be the investment of choice to get rich overnight, but you can still retire nice with cannabis in your portfolio.