The cannabis industry has received some good news today. Two of the largest states made announcements that serve to benefit both their local cannabis sectors. California was one of the first states to legalize recreational cannabis, but today Governor Gavin Newsom took it a step further when he signed into effect a bill that will fully legalize smokable hemp and edibles containing CBD (cannabidiol). Less than a year after legalizing cannabis, New York’s government has ruled that most employers will not be able to drug test employees for it. For cannabis stocks, it’s been a green day in more ways than one.
Cannabis Stocks Are Experiencing Growth
Today’s decisions have been made by U.S. government officials, but the companies benefiting are primarily Canadian. Pharmaceutical and cannabis producer Tilray (NASDAQ:TLRY) has seen some impressive gains, shooting up 16.68% as of this writing. Cronos Group (NASDAQ:CRON) is up 8.5% on the day, while Canopy Growth Corporation (NASDAQ:CGC) and Sundial Growers (NASDAQ:SNDL) have risen 8% and 7.31%, respectively. Sundial made headlines earlier this month when it acquired retail Cannabis purveyor Alcanna (OTCMKTS:LQSIF), another company whose shares are doing well today, up 5.2% as of this writing.
A month ago, InvestorPlace’s Chris MacDonald named both Tilray and Cronos as cannabis stocks that he predicted were in for a profitable fall season. As it stands, he was correct on both counts. Both stocks have enjoyed a season in the green that’s likely to get better following todays news.
What It Means
The U.S. cannabis market is vast and is only expanding. A recent industry forecast reports that cannabis sales in the U.S. have risen by more than 40% since 2020 and are expected to reach $31 billion. The team behind the report expects to see a CAGR (compound annual growth rate) of 15% between fall 2021 and 2026 as U.S. cannabis sales grow from $30.6 billion to $62.1 billion.
With these figures, it’s easy to see the type of growth potential that the U.S. market holds for cannabis companies. As more states move to legalize cannabis and its products, this market will only expand further. In turn, this will create a clear demand for new companies to fill. It’s also likely that states will adopt policies similar to that of New York’s that lean in favor of cannabis and will impose fewer incentives for workers not to indulge in smoking and edibles, particularly as U.S. companies are already struggling to find workers. Cannabis producers know about growth, and they are seeing it in the U.S. market. All these trends will only serve to benefit cannabis stocks.
Why It Matters
California and New York are two of the U.S.’s largest states, as measured by population. They are also typically two of the most influential. Other states are likely to follow their example in adopting pro-cannabis stances as the economic incentives increase, serving to overshadow the reasons not to.
We will see new cannabis companies spring up, but the already established ones are working all the time to increase their market shares and secure status as a recognized household name. This holds true for all the cannabis stocks mentioned earlier. Their shares are rising, and as holiday shopping nears, sales aren’t going to slow down. Anyone looking for a bullish play should definitely be watching the cannabis sector.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.