30 April 2022 |

Cannabis Stocks: The Next Bitcoin?

By Kaitlin Domangue

Imagine holding stock in a company you knew, without a shadow of a doubt, was on the one-way train to success. 

Well, as much as we can be sure about the stock market, anyway. If the last few years have taught us anything, it’s that we never know what’s around the corner. 

In the case of cannabis companies & the stock market, though, it’s about as sure as you can be. The consensus is, that it’s not a matter of if the stocks will take off, but when they will take off.

The Bull(ish) Path

If you look at the market summary of most publicly traded cannabis companies, you’d wonder why anyone is investing in cannabis companies. 📉

Take a look at the one-year charts for Green Thumb Industries, Curaleaf Holdings, and Cresco Labs (U.S. companies): 

The Bull(ish) Path

If you look at the market summary of most publicly traded cannabis companies, you’d wonder why anyone is investing in cannabis companies. 📉

At face value, these stocks don’t look promising and unfortunately, the downwards trend continues with most other cannabis companies. 

But, stockholders and some financial analysts believe it’s just a matter of time before cannabis stocks rise to the top and investors make serious coin. 💵

We have to agree. 

The U.S. House voted on the Marijuana Opportunity Act (MORE Act) on March 30th. Canadian stock Canopy Growth Corp. saw a 5.3% increase in one day. Tilray Brands and Aurora Cannabis, also Canadian companies, increased 6.5% and 8.5% on March 30th, respectively. 

If just the mere possibility of federal legalization sends some stock prices soaring nearly 10% in one day, what will the market look like when federal legalization actually arrives? 🤑

The United States cannabis also market strongly dictates the Canadian market, as we saw with the activity surrounding the MORE Act. 

Federal legalization could suddenly boost the valuation of dozens of Canadian and American cannabis companies overnight, which also means stockholders are reaping the benefits.

Will Cannabis Stockholders Make A Million? 💸

This question, of course, depends on multiple factors. 

First things first – federal legalization in the U.S. opens the door for American cannabis companies to list on the stock market. Currently, no cannabis companies with American operations are listed on American stock exchanges. 

That’s why you see American companies like Green Thumb Industries and Cresco Labs on the Canadian stock market. They went through a reverse takeover to list in Canada. In 2018, 76 of the 379 listed companies on the Canadian Stock Exchange were cannabis companies. 🌿

From a long-term investment standpoint, U.S. stocks are typically viewed as the better buy. The U.S. cannabis market was worth approximately $20 billion in 2020 and the Canadian market is currently worth about $6 billion, several years after federal legalization.

While the Canadian stock market is sure to see key growth after the U.S. federally legalizes, most predict the U.S. stock market will see the most significant increases. 📈

How much cannabis stockholders will make after federal legalization depends on a few things:

  • The price of a share when legalization happens 
  • The rate of growth for each cannabis company in the months following legalization 
  • Which companies they have invested in
  • How much they have invested 
  • How long the stockholder holds their shares and doesn’t sell
  • Whether the stock was U.S. or Canadian

Let’s assume the stock price of cannabis goes up, on average, 10% the day after federal legalization. Amazon recently broke the record for the greatest stock price increase in one day, at 14%. 

If one share is $5, a 10% increase in one day brings the share price to $5.50. This isn’t a huge increase, and we probably won’t see many millionaires after day one of federal legalization.

If we do, they were probably already pretty close to being worth a million. 

We will, however, see a steady increase after the initial jump, so millionaires would likely be in the making at this point. 

There’s also no guarantee of what this increase might look like. 🤷‍♀️

It could be one of the sharpest price jumps in stock market history, given no other industry has been federally illegal, making billions, and on the stock market at the same time. 

Predicting how much stockholders make is challenging, but, we expect to see a few cannabis millionaires popping up 1-3 years after federal legalization.

Looking Forward

We are just waiting on federal legalization to come and disrupt the cannabis space – in a good way. The U.S. House recently approved the MORE Act for a second time. 

The MORE Act would remove cannabis from the list of Scheduled Substances. It also includes social justice provisions to bolster those communities most impacted by the War on Drugs. 

Democrat Senate Majority Leader, Chuck Schumer, was supposed to introduce his bill to legalize cannabis in April. It’s being pushed to August, to the outrage of much of the cannabis industry. 

Looking forward, we’re just waiting on federal legalization. 

Our Take

There won’t be much of a significant return on investment from cannabis stocks until federal legalization arrives, which has been the theme of today’s piece. 

We do think the stock market price will be influenced by other legislative activity, however, like more states legalizing at the midterm elections this year. Just not on a significant or long-term level. 

If you’re looking to invest in cannabis stocks, we recommend looking at U.S. stocks first. We personally believe it to be a smart investment, so long as you’re only investing what you can truly afford.

Green Thumb Industries and Trulieve are two great plant-touching companies with consistently strong balance sheets every quarter.

Keep in mind that we aren’t investment advisors, so do your research and reach out to an expert if you have concerns.