Will Cannabis Stocks Ever Rise Again?

Will Cannabis Stocks Ever Rise Again?

will cannabis stock rise again

What could cause the next spike in cannabis stock prices?

There has been a lot of gloom and doom over cannabis stocks the last few months. When Bruce Linton was fired from Canopy Growth, the entire sector began a slow decline that it has yet to recover from, but is there any hope? Will there be another cannabis stock rally like we saw at the end of 2018 and into 2019? What could cause the spike and why should you be investing now in cannabis stocks?

First, the “doom and gloom” is overdone in the cannabis stock sector. Yes, companies were riding mile-high (no pun intended) stock valuations and they literally could not live up to those expectations based on numbers, projected earnings, and the cannabis market sized based on Canada and some legal US states. Moonshots like Tilray, that went from $24 a share in August, all the way to $148 in 60 days, may not happened again as the market becomes more saturated and international markets bring more liquidity to cannabis stocks. That does not mean that we will not see serious rallies and bubbles in cannabis stocks in the next few years, here are some of the reasons why you want to be long cannabis stocks.

One, it’s cannabis, dummy. The greatest single business opportunity of a lifetime is just beginning right in front of your eyes. The cannabis market will be a trillion-dollar market soon when you include black, gray, and legal markets. The entire world will be ditching some percentage of alcohol, tobacco, pharmaceutical medicines, and vitamins from their lives in order to spend money on cannabis. That is not even counting the current CBD craze that will be getting infused into your tea, soda, food, supplements, and now workout clothing as well. The road may be bumpy, and valuations will soar and dip, but the underlying plant is going to sell, and sell well.

Two, the Safe Banking Act for cannabis and CBD companies will be the first main legislation passed in the US in favor of legal cannabis and CBD at the Federal level. While this bill will be allow cannabis and CBD companies that are state compliant to open bank accounts, get regular merchant processing accounts, and work with financial institutions on such things as 401ks and retirement plans, the big news in the Safe Banking Act is that it now becomes a two-way street with banks and financial entities like VC firms and private equity. We have written about how once a bank can take a cannabis company on for a checking and merchant account, it can now send money back to that cannabis company in investments and other stock enhancing plans. Debt will become much cheaper for cannabis companies on a much less risky open market. You have removed the banks’ biggest worries about dealing with the cannabis industry, losing their US banking license and loosing access to the SWIFT money transfer system. If the financial industry feels much more confident dealing with CBD and cannabis due to the Safe Banking Act, you can guarantee many institutions in the US will be looking for first mover status trying to get into the niche before full scale Federal legalization. Think of the Safe Banking Act as the soft opening of a restaurant, where they are open for a few weeks getting all the kinks worked out before a full-scale grand opening. Banks, venture capital, and shadow banking firms will see the Safe Banking Act as a soft green light to start investing legally in cannabis.

*The argument that the rally in cannabis stocks is over because Canada went legal and some US companies have listed on US exchanges just doesn’t hold up to the math behind stock markets. Technically, only one G7 country has legalized cannabis, and since the US has not legalized cannabis at the Federal level, the other G7 countries are holding off large scale investments due to the language in the UN Drug Treaties that deems cannabis an illegal drug, and countries must respect the US on this agreement. Once the US changes their law on cannabis, UN drug treaties will be adjusted to remove cannabis as an illegal narcotic, and the other G7 counties will have a full green light to grow, sell, and develop their cannabis industries. Literally, 95% of the worlds’ investments funds cannot touch cannabis stocks, yet. To argue the rally is done when 95% of the investment world that deals in 8- and 10-digit numbers when investing can’t invest yet, is ludacris. For example, we got contacted at Cannabis.net about a VC fund that is looking to invest $300,000,000 in cannabis, not a total of $300,000,000, but they want investments of $300,000,000 or more in one or two projects. There are literally so few of those projects even proposed in the market it is almost an impossible order to fill without doing something with Aurora or Canopy Growth. Think of how many of these funds are out there worldwide, thing of the Softbank fund in South Korea and the Dubai and Abu Dhabi state run funds, they put a billion or two into each project they invest in.

*While the Safe Banking Act will cause people to get excited about cannabis investing again, the full-scale legalization of cannabis at the Federal level in the US had massive global implications. Most predict some form of Federal legalization in the next 12 to 20 months. Political support has never been higher on both side of the aisle, tax revenue is booming in legal states, and jobs are being created around the country. It is a win-win for any politician to support legalization, at least at the medical level. When the momentum builds for “the moment”, the frenzy around cannabis stocks will be intense as worldwide funds from France to Japan will look at investing in the space somehow. While cannabis stock analysist Cowen says US firms are enormously undervalued compared to Canadian publicly traded companies, that arbitrage will come down as massive new swaths of money come into cannabis companies based and traded on US stock exchanges. The Safe Baking Act will be the appetizer to the main course of full Federal cannabis legalization.

*Will Canadian cannabis companies be left in the dust? No, not necessarily. Many have already invested heavily in the US knowing that Canada, with only 37 million people total, was not big enough to create a cannabis empire and hit their earnings' mark and predictions. Bruce Linton was heavily investing in the US at Canopy Growth before he got fired, and Aurora and Tilray can also see the future writing on the wall. Canada just doesn’t have enough people as country to create long term revenue growth, so those companies either must start shipping orders and product out to other countries or get into the US early to take advantage of the future US booming market.

Yes, there will be winners and losers like any budding industry, but in the end, if you can take the roller coaster ride, buy a group of good cannabis stocks and just don’t look at them for 36 months. I think you will keep your indigestion and heatburn down to a minimum and you will also be much wealthier.