One chart for 2021 … It’s time to start thinking about marijuana stocks again … four ways to play the sector’s revival
2020 was a dumpster fire of a year.
The market did great, to be sure. But we all had to cancel a lot of vacations, homeschool our kids and quit dining out. And that was the best case. The year was even worse if you, or someone you loved, caught COVID.
Although 2021 hasn’t been without its share of troubles, there is one thing we can point to that is getting better.
You see, when the pandemic really started to hit hard, I started to track the statistics – as I’m sure many did. I was constantly looking at state data and national data, even as I rarely left my own home.
But the new data I’m focused on is how many vaccinations have been administered.
And that number is getting better and better.
Below is a chart from the U.S. Centers for Disease Control and Prevention showing the number of doses administered each day. As you can see the number continues to climb, with the 7-day moving average showing around 1.4 million doses given a day.
This is the one chart we need to watch in 2021.
If this number continues to improve, we can get back to normal life sooner, get more people back to work and get the economy really moving again.
We’re now all concerned about virus variants and the vaccine’s effectiveness against them. But experts are finally sounding hopeful.
Appearing on NBC’s Today Show Thursday morning, Anthony S. Fauci, the nation’s highest-ranking infectious-disease expert, predicted that there could be an “open season” on doses by April.
“By the time we get to April, that will be what I would call, for better wording, ‘open season,’ namely, virtually everybody and anybody in any category could start to get vaccinated,” he said.
If we have enough vaccine to fulfill that kind of vaccination rate, maybe we will all spend the second half of 2021 like it was 2019.
***What to think of marijuana stocks
Have you been watching the marijuana breakout?
Weed stocks have been on a big run since the November elections. Then, this week, many marijuana stocks caught the attention of WallStreetBets, the same Reddit group that recently drove up GameStop in a massive short squeeze.
But all that fizzled Thursday.
Tilray (TLRY) shares fell 49.7%. Aphria (APHA) lost nearly 36% and Aurora Cannabis (ACB) fell 23.5%.
But even with those selloffs, the trend looks to be firmly on the comeback trail. Below is a year-to-date chart of the ETFMG Alternative Harvest ETF (MJ) that tracks marijuana stocks.
Even with the Thursday pullback, MJ is up 131.4% in 2021. So, what’s going on with these stocks?
Luke Lango explained this week in his free e-letter, Hypergrowth Investing.
First, let’s get one thing clear: The global cannabis megatrend is all about legal developments.
The demand is there. We know that. Just look at the black market for cannabis. That’s a roughly $70 BILLION industry in the U.S. alone – and a multi-hundred-billion-dollar industry globally. It’s growing, rapidly, as today’s high school and college students actually smoke weed about as often as they drink alcohol (whereas decades ago, alcohol consumption dominated weed consumption among young folks).
Demand for cannabis globally is enormous.
Thus, the cannabis megatrend isn’t about generating new demand for weed. It’s about transferring the already enormous demand for weed from the black market to the legal market.
How do you do that? Favorable legal action.
And that’s exactly what you’re getting these days.
In 2020, Canada – one of the pioneers for federal cannabis legalization – significantly eased cannabis market restrictions and created a better legal framework that is pulling demand from the black market into the legal channel.
These key changes include:
- Pivoting from a “lottery system” for retail store openings to an “open licensing” model, which has removed a hard-cap on the number of cannabis stores allowed to operate in certain provinces and caused a surge in legal pot distribution.
- Introducing new derivative products like edibles and drinks into the market, which has sparked a surge in consumer demand.
- Dropping the price of legal cannabis to C$7.05 per gram, which undercuts the cost of black market weed at around C$8 per gram.
For the first time ever, legal pot spending in Canada topped black market spending in the second quarter of 2020.
***The U.S. and Mexico are moving toward legalization fast
During the November elections, 5 more states passed legalization initiatives. President Joe Biden has said he supports decriminalization and a number of senators are looking to advance legalization legislation.
And things are looking up south of the border as well. Luke explains…
Also, a headline that’s flying under the radar is that Mexico will legalize cannabis this year, too.
If you’re keeping score that means the following:
- Canada’s legal cannabis market is on the cusp of finally coming into its own.
- The U.S. legal cannabis market is ready to come to life.
- The Mexico legal cannabis market will come online soon, too.
It doesn’t take a rocket scientist to connect those dots.
So it seems the long awaited-for revival of the marijuana sector may actually be underway.
As the name of his e-letter suggests, Luke is our hypergrowth expert. What does he think about the best way to play this sector?
I have four favorites.
On the grower side, I like Canopy Growth (CGC) for its first-mover’s advantage, talented management team, and multi-billion-dollar investment from Constellation Brands. I also like Cronos (CRON) for its unique R&D-focused business model and multi-billion-dollar investment from Altria.
On the retail side, I like GrowGeneration (GRWG) for its compelling opportunity to turn into something like the “Home Depot of Pot.”
And on the technology side, I like WM Holdings (SSPK) because its Weedmaps digital listings platform is already cemented as the “Google of Marijuana.”
Each of those four stocks has been absolutely on fire over the past few months.
But they are also far from done. The cannabis industry will birth titans of industry worth tens of billions of dollars – and the aforementioned stocks have a very good chance of becoming those titans.
Deciding to trade in hypergrowth stocks means living with some volatility, and we’ve certainly seen that this week.
But the growing legalization wave bodes well for an industry that has been in need of a turnaround.
You can get Luke’s Hypergrowth Investing e-letter, plus his free report “7 Hypergrowth Stocks for 2021” by clicking here.
Enjoy your weekend,
Editor in Chief, InvestorPlace