Cannabis Stocks Bottoming – Take a Fresh Look

Cannabis Background

Cannabis stocks have been trapped in a terrible bear market for almost two years.

But now the tide is shifting. I think cannabis stocks have hit a long-term bottom and are now entering a new, multi-year bull market.

Why?

The cannabis industry has scored two game-changing wins in the last month.

#1 – Cannabis Industry Is a Huge Winner During COVID

The cannabis industry has been a top performer during a brutal stretch for the U.S. economy. The cannabis industry was designated as essential in most U.S. states, which allowed companies to continue operating while many other industries were shut down.

The cannabis industry didn’t just stay open, sales surged to a new all-time high as consumers loaded up to deal with the stress of a quarantine. Here are some more details from the New York Post.

Between March 16 and March 22, sales of recreational cannabis across key US markets, including California, Colorado, Oregon and Alaska, were up 50 percent and medical marijuana sales rose 41 percent from the same period last year, figures obtained from cannabis point of sale and data platform Flowhub show.

50% sales increase during a recession? That’s unreal. And it’s getting the attention of Wall Street.

What the coronavirus has taught Wall Street is that the cannabis industry isn’t just recession-proof. Similar to big alcohol, sales actually surge in a recession. How many other industries can say that? Not many.

This ‘recession-proof’ premium had not been priced into cannabis stocks before coronavirus. The cannabis industry is so young that it had never lived through a recession.

But that is now changing. Wall Street is suddenly having a much different view of these stocks because of the strong performance during coronavirus. I expect this to be a strong driving force for cannabis stocks for the rest of the year.

#2 – U.S. Cannabis Industry Eyeing Biggest Legal Win in Two Years

The U.S. cannabis industry is on the verge of its biggest legal victory in years. Under current laws, banks are prohibited from working with the cannabis industry. This has caused a lot of problems for the industry like being forced to only accept cash from customers. The SAFE Act would change that – and the SAFE Act has been added to the latest COVID stimulus package.

Here are some more details from Marijuana Business Daily.

The U.S. House of Representatives late Friday passed a $3 trillion coronavirus stimulus bill that includes a provision that would allow banks to serve state-legal marijuana businesses without fear of punishment.

The bill passed along partisan lines by a 208-199 margin, and now heads to the Senate where it faces fierce Republican resistance.

It’s unlikely the bill in its current form will pass. But more importantly, it demonstrates that the SAFE Act is a top priority for democrats with plenty of support from republicans outside of Mitch McConnell. That tells me the SAFE Act has a high probability of passing by the end of the year.

The string of good news out of the cannabis industry has been fueling a very solid rebound in cannabis stocks. Industry leaders have seen big gains in the last four weeks.

  • Green Thumb (GTBIF): +67%
  • Curaleaf Holdings (CURLF): +57%
  • Cresco Labs (CRLBF): +32%
  • Canopy Growth Corp (CGC): +5%

After the rebound, cannabis stocks are almost back to the levels they were at in late February and early March before COVID wrecked the market.

However, despite the solid rebound, cannabis stocks are still trading well below the 52-week high.

What Should We Expect Moving Forward?

Cannabis stocks did poorly the past two years because expectations were running ridiculously high and the cannabis industry didn’t come close to hitting them.

Right now the opposite is happening.

Expectations have never been lower after this brutal stretch and any news that is even remotely positive is having a hugely positive impact on shares. And we’ve been seeing a lot of good news lately.

Looking forward, I think we are looking at a key reversal in cannabis stocks.

I believe the sector is moving out of a two-year bear market and moving into a multi-year bull market that will be driven by lots of good news on the ground.

The strong performance during COVID was a game-changer for the cannabis industry. The cannabis industry is clearly recession-proof and I expect that to attract a lot of cash to the sector for the rest of the year.

Add in the SAFE Act and you have another major catalyst that brings the industry one step closer to the holy grail – federal legalization.

For the time being, I think the cannabis sector is making a long-term bottom and this looks like a good time to take a fresh look at the sector.

I’ll be looking to close some of the big winners in our model cannabis portfolio. I’ll also be adding new positions soon.

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About the Author & Cannabis Stock Trades

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.

Mr. Vodicka brings his expertise and guidance to the members of Cannabis Stock Trades.

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