The stock market’s rapid fall and subsequent rise in the wake of the pandemic were enough to give investors whiplash.
Now traders are facing a dilemma. They can jump into an increasingly frothy market or stand by and miss out on further gains. But there is one unlikely segment that looks relatively insulated: marijuana stocks.
Cannabis stocks had a terrible 2019 as legalization roadblocks, and a lack of effective execution kept them from living up to investors’ expectations. But pot stocks could be the comeback kids of 2020 as the drug continues to gain momentum amid a backdrop of political change and lockdown chaos.
Like the rest of the market, marijuana stocks took a nosedive in March. The sector has clawed back over 50% of those losses but remains roughly 17% below where it was trading at the beginning of the year.
Zooming out, marijuana stocks are down almost 60% from where they were trading last year.
There’s a reason for that. Back in 2019, the hype surrounding cannabis companies reached a fever pitch; as legalization spread across Canada, a series of missteps and regulatory failures underscored that pot stocks weren’t the golden ticket investors had been hoping for. But 12 months, a pandemic and a 60% decline later, marijuana stocks are starting to look like a pretty good bet.
The lockdown hurt consumer products stocks, as people confined to their homes make for terrible shoppers. But that wasn’t the case for marijuana products, which Americans were stockpiling during the quarantine. The availability of edibles has made getting high much less dangerous during a pandemic.
Marijuana dispensaries were deemed ‘essential’ during the pandemic, allowing them to remain open throughout the entirety of the lockdowns. It turns out users considered the drug to be essential as well.
A Cowen & Co survey showed that sales in California, Nevada, and Washington rose by 17% compared to a year earlier. Meanwhile, the average purchase price increased by a whopping 47%.
The data suggest that marijuana stocks benefit from lockdown. That means they’re a defensive play should a second wave hit and spark new movement restrictions.
Not only that, but they also offer security come November. Whereas pot was once a hot-button issue among candidates, this year’s presidential election probably won’t focus much on the cannabis industry.
If Joe Biden wins the White House, the stock market could be facing a plunge due to Biden’s willingness to repeal Donald Trump’s corporate tax reforms. The marijuana industry, though, could see a boost. Democrats tend to favor legalizing marijuana on a federal level, though Biden has been notably opposed.
But now that he’s the nominee, his stance on the issue appears to be softening. In the case of total Democrat control, the wide-scale legalization of marijuana looks likely.
Banking and regulatory issues make investing options limited in the marijuana industry, but there are some companies worthy of consideration.
Jefferies recommends OrganiGram Holdings (NASDAQ:OGI), a play on the recreational cannabis market in Canada, as well as the growing international CBD market.
Alpha (NASDAQ:APHA), one of the largest Canadian growers, is a top pick at Seaport Global. The firm has a foothold in the low-cost Canadian market and secure international connections that could help APHA take advantage of legalization efforts around the globe.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in any of the above-mentioned companies.