Why Are Marijuana Stocks Growing Like Weeds Right Now?

The government's loosening stance toward pot might be good for the industry, but it's not necessarily what's pushing these stocks

By James Brumley, InvestorPlace Feature Writer


A doubler in one day! A 150% romp in just three days! 200% returns in just six days!

If I didn’t know better, I’d swear we were talking about biotech stocks.

Well, they aren’t biotechs — but they are real moves that have been made by real stocks within the past week and a half, and they’re all from one industry.

The marijuana trade.

Yes, there are publicly traded companies that solely exist to grow, dispense, and support the hemp industry. Plenty of them, in fact. Among their ranks are names like GreenGro Technologies (PINK:GRNH), Medical Marijuana (PINK:MJNA), Growlife (OTC:PHOT), and Hemp Inc. (PINK:HEMP), each of which has seen their stock make triple-digit gains in just the past few days. Why? We’ll get to that in a second.

Legalizing Pot

If this all seems vaguely familiar, it’s because these same stocks were soaring in late October and early November leading up to the 2012 election. Though the presidential race was the high-profile contest, at the state and local levels, voters were making decisions on the legalization of marijuana for medical and/or recreational use. All told, hemp was on the ballot in 14 states last fall, clearly representing a huge opportunity for the companies that grow or sell it.

Only two of those states approved the legalization of marijuana for recreational use — Washington and Colorado; Oregon’s voters shot down efforts to legalize recreational pot. Massachusetts added itself to the roster of now-17 states (18, counting Washington, D.C.) that allow medicinal use of marijuana.

Statistically speaking, pot’s approval in only three of the 14 states where it was on the ballot would be considered a defeat. Yet, three states still represent new revenue opportunities, and the hemp industry still won an indirect victory just by forcing a legitimate discussion of marijuana’s fiscal, medicinal and recreational merits.

In that light alone, the upside for these companies as well as their investors became clear following the election.

However, that euphoria would last for just one day. On Nov. 8 of last year, reality set in; these companies still have to make a product or provide a service, and they need to be able to do so profitably. Legalized or not, the hemp business still is a business, which means headaches like logistics and competition.

Fast forward to today. What latest round of good news spurred these stocks again?

Could it be the president’s subtle tone that he doesn’t really seem to care how — or even if — the present laws are enforced. Ehh … no. Although Barack Obama has said the federal government has bigger things to worry about than arguing with the two states where marijuana has become legal for non-medicinal purposes, bear in mind this is the same federal government that has performed more than a hundred raids on dispensaries, and has issued dozens of related Federal indictments since Obama took office.

Reality: Enforcement of the law as it stands isn’t really President Obama’s call.

Then surely it must be news that the federal government is going to change its stance that marijuana is still an illegal substance. That’s what Oregon Rep. Earl Blumenauer and Colorado Rep. Jared Polis are going to try to do anyway, via legislation that was put before the U.S. House of Representatives on Tuesday. Again, no — not likely. Similar legislation has been floated before and fell flat.

No, the primary reason these stocks started to swell when they did was that they got the right nudge at the right time in the right way, and it simply snowballed from there.

‘Market Awareness’

At least one of the stocks in question was the beneficiary of a campaign designed to create “market awareness” of the company, and another one reportedly has hired a promotional firm to create the same awareness. [Note: This article’s author could only confirm one of these efforts.] One was enough, though, against a backdrop of several press releases, whispers of pot-friendly legislative action and a president that says he’s disinterested. Rational or not, if the market wants to see the glass as half-full, it’ll find a way to do so. And it did.

Of course, once a small crowd started to gather, it took no time at all for a larger crowd to gather and begin inferring the ideas that supported the rally.

Problem: These induced rallies never last. In fact, several of these stocks gave not-so-subtle hints that the buying effort just ran out of gas and the sellers/profit-takers are digging in.

Hemp Inc. shares, as an example, rolled back well off their highs for the day and closed near to where they opened. Medical Marijuana shares made a near-perfect outside reversal of their strong rally, pulling back on more volume yesterday than on any of its recent bullish days. Growlife and GreenGro dropped equally important hints that there’s little to no upside left. It doesn’t bode well.

Marijuana Forecast

The bitter irony is that there’s actually some legitimacy with the marijuana business — even for recreational purposes. But the industry isn’t yet big enough nor legitimate enough to muster and sustain triple-digit gains in just a few days. Although it’s likely that most buyers of these stocks within the past week plowed into them calling it an “investment,” the fact is it was a “trade,” prompted by fear of missing out. There’s just little to nothing to miss out on yet, as investors/traders started to figure out late Tuesday.

Bottom line? Hemp, marijuana, pot — call it whatever you want — it has a future, but it doesn’t have enough of a present to dive in blindly like some already have. Two years from now, some of these stocks will still be around, and some won’t. Some new marijuana names will be on the scene. Some will be well-run and investment-worthy businesses, and some won’t, just like any other industry.

But I’m willing to bet that all of these stocks will be trading at lower prices at some point in the foreseeable future, ‘cause hype never lasts.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2013/02/why-are-marijuana-stocks-growing-like-weeds-right-now/.

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