Investors interested in cannabis stocks are facing some very conflicting opinions.
On one side you have the skeptics. That’s the large group of voices shouting that cannabis is the worst investment ever.
On the other side, you have the get-rich-quick crowd. That’s the group of people who are convinced that owning cannabis stocks for a few years is a quick path to riches and early retirement.
The truth usually lies somewhere in the middle – and that’s true for cannabis stocks.
I think cannabis stocks are a good investment. I also think the cannabis industry is in a position to see a big expansion in the next two years.
While that might not send cannabis stocks to the moon, I do expect it to deliver market-beating gains for the sector that could give your portfolio a very nice boost.
Cannabis Is Still Illegal in the U.S. – That’s a Good Thing for Investors
In an article this weekend from Kiplinger titled Buy Marijuana Stocks Now? You’d Have to Be Stoned, the author suggests that investors should avoid the sector because cannabis is still illegal on the federal level.
“Being illegal presents numerous other obstacles. If you’re producing or selling marijuana in the U.S., you’re violating federal law. Consequently, American marijuana companies can’t list on Nasdaq or the New York Stock Exchange. So they list on the Canadian Stock Exchange in Toronto and the OTC Markets Group in the U.S. where disclosure requirements aren’t nearly as strict as on the major U.S. exchanges. That presents significant challenges for investors who want to find reliable data on American marijuana companies.”
This is the wrong way to look at the U.S. cannabis sector. It’s actually a lot like driving a car while looking out the rear view window.
The fact that cannabis is still illegal on the federal level is actually the best argument why cannabis stocks are a good investment. That opportunity is all going to change within the next 24 months – and when it does the U.S. cannabis industry will soar.
That might seem like an overly optimistic forecast. However, the U.S. is very close to federal legalization.
For example, the STATES Act, a bipartisan bill introduced to Congress in April. would largely solve the conflicts between state and federal cannabis laws.
Also, medical cannabis is now legal in 33 states. Recreational cannabis is legal in 10 states. The trend is your friend and this map showcases the momentum of cannabis legalization. Finally, Mexico is on pace to legalize recreational cannabis this fall. This move would leave the U.S. as the only country in North America not to push legalization forward.
Federal Legalization Would Solve 3 Huge Problems for U.S. Cannabis Companies
Legalizing cannabis at the federal level would give the U.S. cannabis industry an enormous boost by solving three of its biggest problems.
1 – The cannabis industry would gain access to banking services: Currently, U.S. cannabis companies cannot access necessary banking services. Gaining access to financial services would have an enormous impact on cannabis industry growth and profitability.
2 – The cannabis industry is being taxed at a higher rate: Section 280E of the tax law restrains U.S. cannabis companies. This tax code prevents companies that sell a federally illegal substance from taking corporate income tax deductions. This forces U.S. cannabis companies to pay much higher tax rates. Again, federal legalization would fix this and have a huge impact on cannabis industry growth and profitability.
3 – Interstate operations and sales are currently banned: U.S. cannabis companies are forbidden to sell products across state lines. Eradicating this restriction would open hundreds of new markets to the biggest cannabis companies.
As you can see, the U.S. cannabis industry is being held hostage right now. The industry is unable to flourish due to highly restrictive federal regulations. The irony here is that these federal restrictions are exactly why I think cannabis stocks are such a good investment.
These laws are going to change – it’s only a matter of time. When it happens, U.S. cannabis companies will flourish. I expect well-positioned investors (like our Cannabis Stock Trades members) see market-beating gains for cannabis shareholders.
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.