Time to Get High on Pot Stocks? (3 Catalysts)
Perhaps the most significant disconnect between the US government and the American people is the current federal marijuana laws. According to a recent Gallop survey, half of Americans indicate that they have tried marijuana, a new peak in the poll and a noticeable increase versus the 45% who said they had tried marijuana five years ago. Currently, the use and possession of cannabis is illegal under federal law due to the Controlled Substances Act (CSA) of 1970. However, in recent years, a noticeable grassroots uprising has occurred on a state level. Since Colorado and Washington became the first states to legalize the recreational use of cannabis in 2012, there has been a domino effect of states following through. Recreational marijuana is now legal in 23 states – and many other states like Florida have legalized marijuana for medical purposes, but not for recreational use.
Despite the growth in marijuana legalization statewide, public marijuana stocks have been decimated. Since its inception in the second quarter of 2022, the Roundhill Cannabis ETF (WEED) is down nearly 70%. The weakness in weed stocks is due to the failure to pass the SAFE Banking Act – a bill that would permit more banks to do business with legal marijuana companies.
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Marijuana Stocks: Don’t Lose Hope Yet
With the recovery in US equity markets and the underperformance in pot stocks, there has been little reason to enter them – that is, until now. Below are 3 reasons to buy marijuana stocks:
HHS Rescheduling Recommendation
Wednesday, game-changing industry news broke that the United States Department of Health and Human Services (HHS) is recommending that cannabis be changed from a Schedule 1 drug to a decidedly less prohibitive Schedule 3. Schedule 1 drugs include heroin, LSD, and ecstasy. In a statement, an HHS spokesperson said, “We believe that rescheduling to Schedule III will mark the most significant federal cannabis reform in modern history." While the Drug Enforcement Agency (DEA) will still need to review the request, the odds favor that marijuana will be moved to a Schedule 3 drug in the next few years – a major win for the industry. In the short-term to mid-term, HHS’s surprise change to its stance toward marijuana classification should act as a much-needed morale boost.
Outside Investment
Alcohol distribution giant Constellation Brands (STZ) invested over $4 billion in marijuana firm Canopy Growth (CGC). Despite the brutal bear market in shares of marijuana stocks, STZ remains committed to the business – showing firm conviction. As the laws in the United States become more favorable for pot companies, more companies like Constellation Brands may look to diversify their businesses and get a piece of marijuana stocks while they are on sale.
Reversion to the mean potential
When stocks are beaten down, and positive news emerges, the potential for a reversion to the mean trade comes to the forefront. The Weed ETF is showing clear signs of a change in character. Thursday, WEED crossed above its 200-day moving average for the first time in its history as volume spiked by more than 1,000% on the session.
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Stocks to Watch
Green Thumb Industries (GTBIF)
GTBIF is one of the largest producers of marijuana in the United States. In an industry filled with unprofitable companies, GTBIF is one of the few that has achieved profitability in recent years.
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Tilray Brands (TLRY)
TLRY offers investors a uniquely positioned, diverse company. After Anheuser-Busch (BUD) saw sales plunge after receiving backlash for featuring trans activist Dylan Mulvaney, TLRY bought eight beer brands from the beer giant. Tilray is not only one of the largest marijuana companies, it is also now the fifth-largest craft brewer in the United States. TLRY shares earn the best possible Zacks Growth Style Score of A.
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Innovative Industrial Properties (IIPR)
IIPR is a REIT that deals in real estate assets used for growing medical marijuana. Though the stock is not a “pure play,” it will be a direct beneficiary if the industry is to turn around.
ETFs
Because the marijuana industry is highly speculative, news-driven, and volatile, risk-averse investors looking to enter the industry may want to consider the WEED or ALT Harvest ETF (MJ) as a diverse and less volatile means of playing the marijuana industry.
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Constellation Brands Inc (STZ): Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD): Free Stock Analysis Report
Innovative Industrial Properties, Inc. (IIPR): Free Stock Analysis Report
ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
Canopy Growth Corporation (CGC): Free Stock Analysis Report
Tilray Brands, Inc. (TLRY): Free Stock Analysis Report
Green Thumb Industries Inc. (GTBIF): Free Stock Analysis Report
Roundhill Cannabis ETF (WEED): ETF Research Reports