Traders got high on cannabis stocks after President Joe Biden announced a pardon for federal marijuana offenders and moved to re-classify it. Tilray Brands (NASDAQ:TLRY), SNDL (NASDAQ:SNDL), Canopy Growth (NYSE:CGC), and GrowGeneration (NASDAQ:GRWG) all rose at least 20%. Cronos Group (NASDAQ:CRON) was up 13.5%.
All the stocks remain down on the year. As a group, they still sell for a tiny fraction of what they did at the height of the 2018 legal pot craze. At its height, Tilray sold for nearly $150/share and Canopy Growth for nearly $50. Tilray opened on Oct. 7 at about $3.80/share, and Canopy at $3.65.
Cannabis Stocks and Their Long Strange Trip
Colorado made pot sales legal in 2012. Investor excitement peaked with Canada’s first moves toward legalization in 2018. It quickly became apparent that high taxes, and strict regulation, were making it hard for legal weed to compete with the illegal variety, which often cost less.
Some 37 states now allow medical marijuana, and 19 allow possession by anyone over 21. But the laws are a patchwork, often aimed at supporting specific communities, and federal court decisions are threatening that patchwork. Those cases and the President’s action do, however, point to a future of federal regulation, which would benefit the industry.
California is the largest legal market in the U.S., but taxable sales there fell in the first quarter. The number of legal outlets is rising, but the illegal market is too, and so is the damage it’s doing.
Philip Morris (NYSE:MO) put $2.4 billion into Cronos in 2018, taking a 45% stake, but the whole company is now worth just $1.26 billion. That same year, Constellation Brands (NYSE:STZ) put $4 billion into Canopy Growth but that company is now worth $1.8 billion.
What Happens Next?
The state-by-state fight over marijuana will continue. The illegal market will remain a big problem. Profits may be hard to come by until a national solution is found. Marijuana is going to remain a tough business until then, but you can make money on a trade.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.