I see three short-term catalysts for the cannabis sector in the next three months that investors need to know about.
The cannabis sector has been stuck in a nasty bear market for the last six months. The entire sector is down 50%. A string of good news is exactly what cannabis stocks need.
These events could be the catalysts that trigger a big rally.
The House Votes on the Cannabis-Friendly SAFE Act
The SAFE Act would make it legal for US cannabis companies to access banking services. The democrat-controlled House is expected to pass the bill.
After that, the bill goes to the Senate where it is also likely to pass. Some polls are talking about fast-tracking the bill because it has broad support.
The SAFE Act being signed into law in the next six months would be a great step in the right direction. Look for the SAFE Act to be a strong catalyst for US cannabis stocks.
Canadian Cannabis 2.0
Cannabis extracts such as edibles, beverages, and oils become legal in Canada in October and should start selling in December. This is a huge event – it is expected to double the size of Canada’s cannabis market. I expect this to be a big catalyst for Canadian cannabis stocks.
Here’s a report from leading market-research firm Deloitte that makes some very bullish sales projections.
Illinois Goes Legal on January 1, 2020
On January 1, 2020, Illinois will become the 11th US state to legalize cannabis. This is going to be a big deal for two reasons.
In the short run, states going legal has a proven history of sending the cannabis sector vertical. It happened in January of 2014 when Colorado went legal and it happened in January of 2018 when California went legal.
The North American cannabis sector went vertical ahead of California going legal.
California is a larger cannabis market than Illinois – so I don’t expect the exact same reaction. However, Illinois is expected to be one of the largest cannabis markets in the US.
Illinois is the sixth-largest state in the country with a population approaching 13 million. Chicago is the third-largest city in the country with a population of 2.7 million.
Marijuana Business Daily estimates that Illinois’ new rec law alone could generate up to $2.5 billion in annual sales when the program matures, depending in part on how many tourists buy adult-use MJ products while visiting Chicago – the third-largest city in the U.S. – and other parts of the state.
As you can see, the North America cannabis industry has some positive catalysts coming down the pike in the next few months.
This could be just the thing cannabis stocks need to rebound out of this extended bear market.
Which Cannabis Stock Looks Interesting Right Now?
Canopy Growth Corp (CGC, WEED) is the largest cannabis company in the world and a good way to try and capitalize on these events.
- Canopy is better positioned than any other company to benefit from Canada 2.0. Canopy has developed cannabis production facilities that can produce millions of units per month.
- Canopy’s operations in the US are in position to benefit from the potential passage of the SAFE Act and Illinois going legal.
Despite Canopy being in a great place to benefit from these upcoming events, shares are trading at a huge discount to the 52-week high.
Canopy has been weak with the broader cannabis market for the last six months. Shares are trading about 55% below the 52-week high.
After this decline, Canopy is the most oversold it has ever been. The relative strength index below the chart just hit a new all-time low. In the past when Canopy was this oversold it triggered huge rallies.
The Big Picture
I see some big catalysts on the horizon in the cannabis industry. This could be exactly what the sector needs to snap out of this bear market. Canopy is in position to benefit from all these catalysts and meanwhile, shares are trading 55% below the 52-week high.
Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED).
About the Author
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.