After the Downturn, Where are the Opportunities in Pot Stocks?

Pot stocks haven’t been looking great lately. The Global Cannabis Stock Index fell into a bear market in October after dropping 22.3% throughout the month. There were two main reasons for this weakness.

First, the overall stock market experienced a correction that sent high-volatility equities — such as pot stocks — drastically lower. Then there was the federal legalization of recreational marijuana in Canada. This was obviously great news for the long term, but we saw a “buy the rumor, sell the news” reaction in all related stocks.

None of this has changed my long-term outlook on the booming marijuana industry. The selling shook out weaker-willed investors who couldn’t grasp the big picture and created an opportunity. In fact, we already saw buying last week: the Global Cannabis Stock Index rallied nearly 20% from its October 29 low before falling again.

But don’t let that downturn turn you off. The good news for pot stocks keeps on coming. Thanks to voters in the midterm election, Michigan has joined the nine states and Washington D.C. in legalizing recreational marijuana. And Utah and Missouri have joined the growing list of states that offer marijuana medically.

The “green wave” is taking over the United States and the opportunities are ripe for the taking.

Pot Stocks’ Potential in the United States

In recent years, investors have set their sights on Canadian marijuana stocks because of the country’s progressive views on legalization. That’s smart, and a lot of money has been made.

But now our attention needs to shift to the United States. While the country is still years away from full legalization, now is the time to buy to capture the big returns.

In general, U.S. pot stocks trade at much lower valuations than their Canadian peers. This is because of the current federal laws that regulate marijuana. And all that means is that there is a whole lot of room to grow once it does finally become legal.

One U.S. marijuana company that has made headlines recently is iAnthus Capital (OTCMKTS:ITHUF), an owner and operator of cannabis cultivators, processors, and dispensaries. Last month, the company announced a merger with MPX Bioceutical (OTCMKTS:MPXEF) worth $835 million.

That marks the first public-to-public merger in U.S. marijuana market.

The combined company will have operations and licenses in 10 states that will result in 56 retail locations and 14 cultivation and processing facilities. According to Arcview Market Research and BDS Analytics, those operations should generate annual sales of $16.2 billion by 2020.

And that’s only the beginning of the possible upside here. I expect ITHUF to continue to expand its reach in both new and currently-occupied states in the coming years.

As more and more states — and eventually the federal government — legalize marijuana, the largest cannabis market in the world will be created. ITHUF and its pot stock peers in the U.S. are well positioned to capture the huge upside of this potential windfall.

Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.

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