Marijuana Stocks

Get Nate's Best "Pot Stock" Ideas Delivered to Your Inbox!

... Come on, you know you want them

U.S. stocks have skyrocketed to new highs following Donald Trump’s election, but the booming marijuana sector is struggling for direction under the new administration.

The surprise election of Donald Trump to U.S. president triggered one of the biggest stock rallies since the financial crisis, but conflicting signals about the GOP’s stance on marijuana legalization has taken the zap out of the cannabis industry.

The U.S. Marijuana Index, an equal-weighted benchmark of the country’s top cannabis companies, has declined more than 20% since the November 8 election. By comparison, the large-cap S&P 500 Index has gained more than 7% over the same period.

Just prior to the election result, the marijuana index posted double-digit gains as several states voted to legalize cannabis consumption. The most prominent referenda were held in California, Nevada, Maine and Massachusetts, where recreational marijuana use was officially sanctioned. From an investment perspective, the result in California was the most compelling, since the state alone represents the world’s eighth-largest economy. If the marijuana industry can be regulated here, it can presumably be regulated anywhere in the country, opening the door to new investment opportunities.

Though mainstream appeal is growing, skeptics warn the political environment isn’t supportive of sustained growth for marijuana stocks, especially those operating outside the big pharma industry. The Marijuana Policy Project, a Washington-based lobby group, gives Trump a “C+” grade on marijuana legalization, and that was before he appointed Jeff Sessions to Attorney General. Sessions is vehemently opposed to legalizing cannabis. Combined with the GOP’s already negative view on recreational use, the drug is unlikely to get a favorable DEA classification over the next four years, making it difficult for growers to finance operations. Without banking reform, marijuana stocks may not have much room for growth.[1]

When it comes to marijuana investments, pharmaceuticals appear to be the safest bet. Companies like GW Pharmaceuticals (GWPH), Corbus Pharmaceutical Holdings (CRBP) and Insys Therapeutics (INSY) are on the cutting edge of cannabinoid treatments for diseases that include epilepsy, sclerosis and anorexia.[2] However, even these companies haven’t been immune from the broad slowdown in big pharma since Trump was elected. The industry is expected to face strong headwinds now that the President has made himself an opponent to high drug costs. The S&P 500’s pharmaceutical component has declined over 2% since early November.

The marijuana industry has shown tremendous growth in recent years, but is highly fragmented and dominated by smaller players. Without the emergence of larger, more visible companies, profitable opportunities may be few and far between for active investors. The Marijuana Business Daily, a respected news source for the industry, doesn’t expect much to change over the next four years. This means the Trump administration will be more of a hurdle than a catalyst for the industry.

There’s still plenty of speculation left to be done and investors looking for greener pastures in marijuana stocks can still find them. The industry is on track to become a $21 billion business by 2021, according to ArcView Research.[3] Though a Trump administration is unlikely to drop the status quo on recreational use, it is more likely to back medical marijuana. Trump’s words also seem to indicate that he views marijuana as a state and not a federal issue, a sign the industry will continue to move forward on its current path. For active investors, fundamental analysis of the companies involved in breakthrough medical treatments is probably the best place to start.

 

Sources

[1] Todd Campbell (November 12, 2016). “What’s Next for Marijuana Stocks Now That Trump’s Won?” Motley Fool.

[2] Keith Speights (December 4, 2016). “Top Marijuana Stocks to Buy in 2017.” Motley Fool.

[3] Debra Borchardt (January 20, 2017). “5 Ways Trump Could Affect The Marijuana Industry.” Forbes.

Be a Better Stock Trader, Starting Today

Get the expert insights, tips and strategies you need to optimize your trading skills and profiles

Our Raging Bull Experts have been featured on: