[Editor’s Note: This article was initially published in December 2019. It was updated on March 25 to update the included information.]
The market for cannabis products in the U.S. is starting to look bleak, continuing to weigh on marijuana stocks over the past year. Not only have health concerns about vaping THC products hurt the chances of full-scale legalization, but a new warning from the FDA regarding CBD has put a damper on the entire cannabis market. And the impact on the economy of the coronavirus isn’t helping.
Once the economy gets back on track, marijuana has the potential to become one of the most explosive new markets the U.S. has ever seen. But that massive growth will only be possible if the drug is taken off the Federal government’s list of Schedule I drugs. Its classification there makes it virtually impossible for the marijuana market to take off in the U.S. Not only does it restrict which states allow marijuana sales, but it makes it difficult for marijuana firms to access financial markets and even rent out retail space to open storefronts.
Progress on full-scale legalization in the U.S. would be a boon for marijuana stocks and open the door for growth in the industry. Of course, buying marijuana stocks after the drug has been reclassified would mean investors would miss out on potentially huge gains. But there will likely be smoke before the fire, giving traders an opportunity to buy beaten-down marijuana stocks before they recover fully.
Clayton J. Mosher, a Professor at Washington State University Vancouver, and the author of In the Weeds: Demonization, Legalization, and the Evolution of U.S. Marijuana Policy says the biggest factor in the legalization of marijuana is the political party controlling the White House.
“While there has been some movement in the Congress to reschedule cannabis I think it is unlikely that this will happen under the current administration. So probably the most important thing to pay attention to is who is likely to win the 2020 federal election.”
Mosher says that a Donald Trump re-election is unlikely to yield much positive news for the marijuana space, but a democrat— any democrat— signals change ahead.
“Even if the democrat nominee is Biden (who is opposed to full scale legalization, and continues to refer to cannabis as a gateway drug), he has committed to considering rescheduling. The other candidates are more likely to support full legalization.”
With that in mind, investors might want to get some pot stocks on their radars for 2020 as the race for the White House heats up.
iAnthus Capital Holdings (ITHUF)
Headquartered in New York, iAnthus Capital Holdings (OTCMKTS:ITHUF) operates cultivating, processing and dispensary businesses around the U.S. ITHUF stock is expanding its presence in Florida through GrowHealthy, one of its subsidiaries. GrowHealthy currently has 12 dispensary locations in Florida, with plans for another six in place.
Perhaps more helpful in this environment, however, is the company offering free delivery.
Canopy Growth (CGC)
Canopy Growth (NYSE:CGC) is one of the largest players in the marijuana space and its partnership with Constellation Brands (NYSE: STZ) makes it one of the safest bets for the future of marijuana. Right now, CGC dominates the recreational cannabis market in Canada and holds a strong position in Europe.
What makes CGC stock worth watching is the fact that it looks likely to be one of the first winners if marijuana is reclassified in the U.S. The firm’s partnership with STZ gives it two distinct advantages over its peers.
The first is cash. Constellation Brands offers a great deal of funding that will help CGC establish itself in the U.S. market. The second, and arguably more important, advantage is access. STZ is already a major player in the U.S. market and that access will help CGC make the most of an improved regulatory environment.
Aphria (NYSE:APHA) stock has been beaten down alongside the rest of the marijuana industry, but some of that negativity hasn’t been deserved. The firm has been able to turn a profit — something that can’t be said about the majority of cannabis players — and its operations have been efficient despite regulatory pressures.
Regardless of the 2020 presidential race, APHA stock looks to up its production capacity and incorporates automation in 2020 to make its operations even more efficient.
For investors who are willing to take on a bit more risk today, APHA stock is a cannabis play that has upside even without a broader U.S. market.
Cronos Group (CRON)
Cronos (NASDAQ:CRON) stock represents another company that could see massive upside if the U.S. market opens further. Part of the reason to like CRON stock is the fact that the firm boasts one of the most stable balance sheets in the marijuana space. That means the firm has flexibility to invest in its growth should U.S. regulations start to loosen.
The other big advantage that CRON holds is it’s ties with Altria (NYSE:MO), an American tobacco heavy-weight. Not only does Altria give CRON access to the U.S. market on a much wider scale, but MO’s experience in the tobacco industry means the firm can help CRON navigate ongoing concerns about the health impacts of marijuana use.
The Bottom Line
Investors shouldn’t hold their breath on the legalization of marijuana in the U.S. While the drug has taken massive steps forward over the past few years, full legalization is unlikely over the next year or so. No matter who is in the White House, marijuana is unlikely to be a priority for the new president. Plus, party control in Congress will have an impact on whether the president will be able to push their agenda.
However, the election does represent a first step toward legalization if the outcome favors the democrats. That means if you’ve got a long timeline and you’re comfortable with risk, 2020 could be a great time to start picking up pot stocks.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.