I have been bullish on cannabis stocks for quite a while. To date, my bullishness hasn’t paid off. In fact, cannabis stocks and ETF’s have taken a real beating over the past 12 months. But our outlook has always been for the long term and recent news from the US White House has only reaffirmed my very positive outlook.
Last week, President Biden announced steps toward a massive overhaul of U.S. cannabis policy. Biden called for a review of how cannabis is currently scheduled under federal law. Cannabis is still classified as a Schedule 1 drug. That classification includes drugs that have no accepted medical use and have the highest risk for substance abuse, such as heroin and puts cannabis in a more restricted category than even fentanyl and cocaine. This is simply wrong considering that 70% of US voters think that cannabis should be fully legal. Plus, cannabis is already fully legal in 19 states and legal for medical reasons in 38 states.
This news should be the official turning point for cannabis stocks and ETF’s. Getting cannabis out of Schedule 1 category will become a big catalyst for the stock prices of cannabis companies. It will lead to a massive amount of buying interest. Currently, and as long as cannabis is still a Schedule 1 drug, no institutional or retail investor can own shares in multistate operators (MSOs). Brokers don’t trade them, mutual and hedge funds aren’t allowed to own them. The MSOs can’t even list on US stock exchanges.
As a result of this all, cannabis stocks are extremely undervalued. The MSO industry is probably one of the most undervalued high-growth sectors the market has ever seen despite stellar sales. Once cannabis is re-categorised or even fully legalized, a lot of money, previously not able to own MSO stocks will suddenly flow into cannabis stocks and ETF’s. Then, the current mismatch of growth and valuation will disappear. The upside potential is immense, probably something, we have not seen for quite a while.
For me, the successful investment and huge profits that come along with it, was always a matter of “when,” not “if.” The current news makes the wait for the “when” much shorter.
Sven Franssen