In this week’s Marijuana Market Update, I provide an update on cannabis legalization in the United States. I also answer a viewer’s question on how to break into cannabis investing.
Let’s get into it.
State of U.S. Cannabis Legalization
The biggest hope and dream of every cannabis investor is that Congress will get itself in gear and legalize cannabis at the federal level.
An April 2021 poll by the Pew Research Center found that 60% of Americans believe both medical and recreational marijuana should be legalized in the U.S.
Around 31% of respondents said only medical marijuana should be legalized.
However you slice it, more than 90% of Americans believe marijuana should be a legal substance in the U.S.
However, lawmakers in Washington continue to view marijuana the way alcohol was looked at before prohibition in the early 1900s.
So, as I’ve said before, states need to push cannabis legalization.
And, so far, that seems to work.
In 2020, cannabis advocates scored victories as voters approved recreational legalization in Arizona, Montana, New Jersey and South Dakota. Additionally, Mississippi and South Dakota approved medical cannabis — despite courts overturning the will of voters in those two states.
Last year, New York, Virginia, New Mexico and Connecticut also approved recreational cannabis.
2022 Midterms Are Important for Cannabis Legalization
We can now look ahead to the next big election cycle: the midterm congressional elections later this year.
Control of both the U.S. House of Representatives and the Senate will be up for grabs.
Instead of broad control, cannabis companies and investors should look at individual states considering cannabis referendums.
According to a recent article by Marijuana Business Daily, eight states could vote on legalization questions in the upcoming election.
There are strong efforts to get recreational measures placed on the ballot in Arkansas, Missouri, North Dakota, Ohio and Oklahoma. The Maryland state legislature is poised to use legislation to get the question on the ballot.
Voters in Idaho and Nebraska could vote to legalize medical-use marijuana.
If recreational cannabis measures are passed in those states, it would bring the number of states with legalized adult-use cannabis to 24 (including Guam and the District of Columbia).
So, almost half the states in the U.S. could have recreational adult-use cannabis by this time next year!
For more on cannabis legalization efforts in other states, click here to watch the rest of my latest Marijuana Market Update.
Gary emailed me at Feedback@MoneyandMarkets.com and said:
I could shoot myself for not trusting my first instinct, which was cannabis, but I bought gold and silver instead. I would like to buy a good cannabis stock or two. Any suggestions regarding a trade would be much appreciated. Thanks. — Gary
Gary, thanks for your email. The answer to your question is tricky.
While I can’t advise you on your specific portfolio, I can tell you what you (or other new cannabis investors) should look for in a potential cannabis investment.
One thing to keep in mind is that the market is volatile right now. The broader market is down, and cannabis stocks have faced some significant headwinds since reaching highs in February 2021.
There are a boatload of small, low-priced, over-the-counter stocks out there. But be careful. A lot of these are thinly traded and won’t provide much in the way of gains.
It’s easy to think that these kinds of stocks could produce the cannabis version of IBM or Amazon, but with the state of cannabis in the U.S., that’s not likely soon.
That said, you don’t have to aim for a higher-priced equity either.
3 Ideas for Cannabis Investing
If you are looking to break into the cannabis market, I would start with a few ideas:
- Look at a cannabis ETF — There are a few cannabis exchange-traded funds that invest in several different cannabis companies, so the ETF shareholders don’t have to. Some tickers to look at include: MSOS, MJ, YOLO, POTX, CNBS, THCX and TOKE. The benefit here is diversification and dividends.
- Explore REITs — These real estate investment trusts are companies that own and operate real estate used for specific sectors, including cannabis. IIPR, NLCP, AFCG and PW are tickers you can look at here. These REITs have performed a bit better than traditional cannabis stocks (I talked about this in a previous update). These REITs also pay dividends to shareholders.
- Then, there are individual cannabis stocks — If ETFs or REITs don’t interest you, you are left with looking for individual cannabis stocks. Consider that currently, most cannabis stocks move in lockstep with each other, and the entire market is waiting on a big headline to push it forward. If you were looking at individual stocks, multi-state operators, or MSOs would be the place to start.
So, Gary, there is no easy way to answer your question, but you (along with any other new cannabis investors) do have some options to get started. If you find something that interests you, email me, and I would be happy to give you some analysis or comparison.
Again, thanks for your email and remember, we are going to reach out and get you set up with some free Money & Markets gear.
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Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.