It’s a matter that was largely lost in the political shuffle on Tuesday, as almost all eyes were on the Congressional and gubernatorial races. But once again, initiatives regarding the legalization of marijuana were on several states’ ballots, and the results of those initiatives have positively boosted pot stocks. A total of four U.S. states were voting on how they would handle cannabis going forward.
Indirectly, that’s another win for pot stocks regardless of the outcome of the voting because it shows that the conversation about pot isn’t going away. Indeed, if anything, it’s picking up steam as well as picking up credibility.
And, if only because it’s being viewed as one of the market’s most legitimate pot stocks right now, Canada’s Canopy Growth (NYSE:CGC) — along with owners of CGC stock — were big winners of Tuesday’s polling.
It’s All About Perception
As I noted in my October 26 column on Aurora Cannabis (NYSE:ACB), pot stocks, including Tilray (NASDAQ:TLRY), Cronos Group (NASDAQ:CRON) and of course CGC stock, haven’t been trading on value. They’ve been trading on hype and rhetoric.
That’s fine. There’s a certain amount of X-factor baked into the price of any particular equity at any given time. Marijuana stocks, however, reflect far more than their fair share of X-factor.
And that’s why Tuesday’s voting largely refilled CGC stock’s proverbial gas tank that was nearing empty. After obtaining some fresh, key wins, the cannabis movement should keep CGC stock’s current uptrend and similar rallies by its peers intact for a good while longer.
Three for Four
Actually, the voting-based rekindling of pot stocks started over a week ago, as the likely outcomes of the marijuana referendums became clear, making investors start to believe that the movement would make progress. Now they know it will make progress.
On Tuesday, Missouri and Utah were considering legalizing medical marijuana, while Michigan and North Dakota were voting on legalizing all marijuana use. The legalization initiatives in Missouri, Utah, and Michigan all passed, but the North Dakotans voted against legalizing pot for all uses in their state.
A total of 32 U.S. states have now legalized marijuana, some for recreational uses, others for medical purposes, and a handful for both.
Maria McFarland Sanchez-Moreno, executive director of the Drug Policy Alliance, commented on Tuesday’s voting results “Western and northeastern states have led the way on legalizing marijuana, but the victory in Michigan powerfully demonstrates the national reach of this movement,” adding “With such overwhelming public support for marijuana legalization, even including majorities of Republicans and older Americans, there’s only so long that the federal government can continue to hold out.”
She’s right. Pew Research reports that as of October, 62% of Americans support the legalization of cannabis, extending a long-standing uptrend deeper into record territory. Inspired by the traction they’ve been gaining for some time, advocates aren’t easing up.
The Bottom Line on CGC Stock
As for the direct impact of the initiatives on CGC, don’t look for a clear one, and don’t look for one right away. It could take awhile to see any measurable benefit, if one materializes at all.
Again, though, that’s not the point. Investors are connecting dots that are relatively far apart, but they are connecting them all the same. Specifically, they see the results of Tuesday’s cannabis referendums as evidence that Canopy Growth is catching a real, and real-time, tailwind. That’s good for CGC stock.
I hope that owners of CGC stock have fun on this ride. But don’t be lulled into thinking this trade is something it isn’t. Perceptions can be quite deceptive.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.