In December, the Democrat-led House quietly passed the MORE Act, otherwise known as the Marijuana Opportunity Reinvestment and Expungement Act. Marijuana stocks, as measured by ETF Horizons Marijuana Life Sciences Index (TSE:HMMJ), rose just 30%.
Wall Street’s sleepy response might go down as one of the biggest underreactions in history. Few people realize that Americans spend $5.8 billion on marijuana products each month, while sales of tobacco products continue to fall. And with the possibility of legal pot tantalizingly near, these small billion-dollar Canadian companies could become the next hundred billion-dollar firms.
Marijuana stocks have long resembled a real-life version of the French play Waiting for Godot. Many frame the Republican leader, Sen. Mitch McConnell, as the villain, but broader resistance from many conservative politicians have stonewalled efforts to move federal legalization forward. Even state and local legislators have fared no better – the tangle of state laws has left marijuana producers and sellers in a state of pseudo-legality.
Marijuana stocks have suffered the consequences. Barred from doing business at the federal level, companies saw their shares drop up to 95% from their 2018 peaks. And because these companies list on U.S. exchanges, they’re also barred from doing business even in legal marijuana states.
The results of the 2020 election, however, has turned the tide. With Democrats now in control of the Senate, Congress could finally vote on the MORE Act and open the floodgates to the $78 billion-per-year U.S. marijuana market.
In a country that spends almost as much money on marijuana as it does on tobacco, it’s easy to see why cannabis companies could one become worth Philip Morris (NYSE:PM) and Altria’s (NYSE:MO) combined $200 billion value.
So, how to find these winners? Broadly, investors should choose only the strongest players. Just like any other semi-legal industry, the marijuana industry is full of hucksters and frauds. Only the best-run have a lower risk of management running off with your money.
Investors should also recognize how much risk they’re willing to take.
- Cannabis producers (farmers/growers): These tend to have both higher financial and operating leverage – while they could rise the most, they’re also likely to go under if the Senate stalls on the MORE Act.
- Cannabis marketers (brands/distribution): These offer less upside in the short term, but also have better downside protection. In the long term, they’re the companies most likely to replace Big Tobacco.
To get you started, here are the four marijuana stocks with strong potential.
- Canopy Growth (NASDAQ:CGC)
- Cronos Group (NASDAQ:CRON)
- Tilray (NASDAQ:TLRY)
- Aurora Cannabis (NYSE:ACB)
Marijuana Stocks to Buy: Canopy Growth (CGC)
Canopy Growth has long been the lead dog of…