A Cannabis Bull Market Is About to Start

I have been cautious on cannabis stocks for quite some time, but I have gotten a lot more optimistic recently. On 8/25, I explained here that cannabis stocks are likely exiting a bear market. What a bear market it has been! The index has dropped over 90% since the peak in February of 2021. This is like the Great Depression was for stocks.

Just like many hated stocks during the Great Depression, they don't care about cannabis stocks now. It is a market that has minimal institutional exposure - it's all retail traders. Since my piece two weeks ago, the market has pulled back a bit. The New Cannabis Ventures Global Cannabis Stock Index had closed on 8/23 at 8.88, and now it is 8.29, 6.6% lower. This is still up year-to-date after three straight annual declines, but the rally is only 2.2%. This is a lot worse than the S&P 500 or even the Russell 2000 (small-caps).

As I wrote in that piece two weeks ago, a major bullish catalyst is playing out. Rescheduling of cannabis remains on track, but the DEA announced on 8/26 that there will be a hearing 12/02. I don't think this is bad. In fact, it solidifies the end result if they hold this hearing and move forward. As I said two weeks ago, it is not a done deal. Again, this is all about eliminating an onerous tax, 280E.

The cannabis sector has been hurt by the pandemic. Early on, people were shocked (as I was then too) by how strong cannabis consumption was early in the pandemic. In late 2020, though, it seemed very clear that people being forced to stay home, getting paid still by work and by the government too, suffering from stress and not being tested for cannabis consumption turned to cannabis. The numbers were very strong. Then, in late 2020, the Democrats took the Presidency and both houses of Congress. Many (not me!) thought cannabis would be legalized. So, the bear market since early 2021 is related to no legalization and no booming demand.

There have been other issues impacting these companies, but some of them are changing. One of the biggest issues has been the strength of the illicit market. Most consumers want good cannabis at a good price, and they don't really understand how dangerous unregulated cannabis can be. California was one of the largest cannabis economies in the world, but the state blew legalization. Southern California was dominated by unlicensed sellers of cannabis. I have been watching New York for a long time, and that state messed it up too. Well, now it is booming! The state is finally slamming the door shut on unlicensed sellers and awarding new licenses as well. I have written about this in the newsletter at New Cannabis Ventures twice recently. It's big!

I have no vested interest in readers buying these stocks. I don't own any (avoiding a potential conflict of interests with my subscribers at 420 Investor), and no one is paying me to say good things about these companies. That would never happen! I have been following this sector for 11 years now, and I want to maintain my position as an expert on cannabis stocks. My other hope is that readers who want to invest in the space will consider subscribing to 420 Investor. I think that I do an excellent job of pointing out pros and cons for 23 Focus List names. Perhaps for some it is helpful that I provide a model portfolio. They can use this for ideas, or they can just copy it. My model portfolio has done well for more than a decade. What do I mean by this? It goes up more when cannabis stocks are rallying and down less when they are falling. The performance in 2024 has been exceptional! Through last night, the model portfolio is well ahead of that 2.2% gain in the index, increasing a stunning 25.4%.

I understand that not everyone wants to be a subscriber to my service, and I offer a lot of other ways to stay on top of cannabis stocks. Some are free, including that weekly newsletter. I am a big fan of Seeking Alpha, which hosts 420 Investor and also publishes my cannabis articles each week. I am not directly selling subscriptions to their service, but I think Seeking Alpha Premium is a good deal. The first month is just $4.95! A whole year costs less than $20 per month. There are many things subscribers get, but one thing would include access to all of the articles that I write.

Again, as I said before and above, rescheduling is not yet a done deal. I think that there is downside for many of these stocks if 280E remains, but we appear to be moving forward. Cannabis stocks are cheap and beaten up. This former cautious-on-the-sector analyst is getting excited!