Santa Claus Rally for Cannabis Stocks?

It’s one of the most reliable seasonal trends in the US stock market. It is historically a very profitable four weeks for investors.

And this year, I see evidence that it could give the cannabis sector a much-needed boost.

I’m talking about the seasonal trend known as the Santa Claus Rally.

The Santa Claus Rally is the tendency for the US stock market to rally in the last five trading days of the year and into the first few days of the new year.

The Santa Claus Rally is the reason why December ranks as the single best month of the entire year for US stocks.

According to a report from Investopedia, from 1950 to 2017, December had the best average return, clocking in at 1.60%.

November and April are tied for second best with average returns of 1.50%.

I see a few theories on why US stocks tend to do well in December.

  • Increased consumer spending because of holiday shopping.
  • Optimism driven by the spirit of the holidays.
  • Holiday bonuses being reinvested in US stocks.
  • Large fund managers re-balancing into the new year.

Regardless of the cause, the Santa Claus Rally is very real and very powerful.

And one of the best places to find a Santa Claus Rally is in the cannabis sector.

Cannabis Stocks Have History of Surging in December and January

Cannabis stocks have a strong history of launching absolutely ridiculous Santa Claus Rallies.

The cannabis sector rallied huge in December and January of 2016, 2017, 2018, and 2019.

Take a look at the chart below and you can see what I am talking about.

History alone tells me to expect big things from cannabis stocks at the end and beginning of the year. But this year, I see three more powerful catalysts that should give the cannabis sector an extra boost.

3 Reasons I See a Santa Claus Rally for Cannabis Stocks

Looking forward, I see a high probability of another Santa Claus Rally in 2020. I see three powerful catalysts hitting the North American cannabis industry in the next few weeks.

1 – Illinois Goes Legal on January 1

This is going to be a big win for the US cannabis industry. In the short run, I expect it to generate a ton of publicity for US cannabis stocks, particularly for cannabis stocks operating in Illinois.

In the long run, analysts are projecting that Illinois could grow into the cannabis capital of the Midwest. Annual sales are projected to reach between $1.5 billion and $2.0 billion when the market is fully mature.

2 – Canada 2.0 Goes Live in Early January

The size of the Canadian cannabis market is expected to basically double in the next month. In January, Canadian cannabis companies can finally start selling cannabis extracts. This includes some of the most popular and high-growth cannabis products such as vapes and edibles.

3 – The Cannabis Sector Is the Most Oversold It’s Ever Been

2019 was a tough year for cannabis stocks. The entire sector saw a very deep sell-off. The sell-off was painful for current shareholders, but it also created an opportunity for new investors who were waiting for a bigger pullback to step into the market.

The cannabis sector is now the most oversold its ever been and trading with some of the lowest valuations the industry has ever seen. I expect those low prices to be a big trigger for billions of fresh capital to flow into cannabis stocks.

The Big Picture

The Santa Claus Rally is one of the most reliable trends in the stock market. One of the best places to find a Santa Claus Rally is in cannabis stocks.

The sector has surged in December and January in each of the last four years. This year, I see three short-term triggers that tell me cannabis stocks are in position for a big rebound over the holidays.

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.