Investor Insights:
- In the past seven years, cannabis usage has grown 40%.
- Global cannabis growth is expected to triple in the next five years.
- Three upcoming events may spark the next bull run for cannabis. so get your pot stocks.
It took 15 minutes just to pull into the parking lot.
I had to back my rented midsize SUV into a tight spot because cars were jam-packed into the overflowing lot.
After the parking fiasco, there was a wait to enter the store, which was located on the second floor above a military surplus store.
Given the long lines, you might have thought I was at Costco the weekend before Thanksgiving, or at Walmart on Black Friday.
That wasn’t the case. I was visiting the largest licensed recreational cannabis dispensary in San Diego, California: San Diego Recreational Cannabis, or SDRC.
Friends had told me that this was the biggest dispensary in Southern California, and I was eager to check it out.
Once I was inside the dispensary, a security guard checked my ID to make sure I was 21. He then pointed me to an ATM because transactions were cash only.
There was a final queue that led to 10 similar-looking checkouts. At each station was a glass case filled with edibles, vapes and tinctures — drops that can be dissolved under the tongue.
The bright, fluorescent colors were reminiscent of candy stores. This irony wasn’t lost on me.
SDRC is in operation because California joined the nationwide legalization trend last year. And it’s one of many reasons why I believe pot stocks are on the cusp of another boom.
That means it’s time to start looking for new ways to play this exciting new sector of the economy.
Cannabis Consumption Is on the Rise
In the past seven years, cannabis usage has grown 40%, from 11.5% in 2011 to 15.9% in 2018.
But it’s no secret that cannabis consumption is on the rise.
In the past few decades, states have been decriminalizing cannabis for medical and recreational uses.
Medical marijuana is now legal in 33 states plus Washington, D.C.
And in 11 of those medically legal states, including California, recreational use is legal for adults over the age of 21.
In 2016, voters in California passed the Adult Use of Marijuana Act, which allows adults 21 and over to possess, privately use and give away up to 1 ounce of cannabis. It’s now also legal to cultivate up to six plants for personal use.
And as of January 1, 2018, it’s legal to produce and sell cannabis at state-licensed facilities such as SDRC.
In 2020, another nine states could hold key votes on some form of marijuana legalization.
In the U.S., sales are expected to double in the next five years. Statista forecasts that the cannabis market will grow to $21.6 billion in sales in 2024.
Global growth is expected to triple in that same time period to $63.5 billion in sales.
Buzz in the Real World, None on the Stock Market
While legislation continues moving in the right direction, prices of cannabis stocks paint a different picture.
Once-high-flying Canadian cannabis stocks suffered a brutal bear market in 2019.
Ontario-based Canopy Growth, once the world’s largest cannabis company, has dropped 65% from its peak.
Aurora Cannabis, which is based in Edmonton but operates in 24 countries, fell 61%.
And Tilray, the darling of the cannabis rally, fell from a peak of $300 in 2018 all the way down to $22 a share.
Even though the sector is showing big losses, the underlying push toward decriminalization still persists.
But every boom/bust eventually ends, and a new one begins.
A Sign That the Negatives Are Priced In
Bear markets end when stocks stop going down on bad news. That’s when everything is finally priced in, and the market looks to the future to drive the stock price.
Since August, the news on pot stocks has been dreadful. The Centers for Disease Control and Prevention announced it’s conducting an investigation into the link between pulmonary illnesses and e-cigarette use, or vaping.
This caused a sell-off that sent the ETFMG Alternative Harvest ETF (NYSE: MJ), a cannabis exchange-traded fund (ETF), lower by 35%.
In mid-October the sell-off bottomed. Since the low of $18.07, MJ has bounced 15%.
Canopy Growth rallied 24%. Aurora bounced 18%. And Tilray shot up 24%.
This is a sign that the negatives are priced in, and investors looking to sell have already sold.
Plus, there are a few upcoming events that may spark the next bull run:
- Cannabis is on the ballot in nine states in 2020. Voters have the opportunity to open new markets for the industry. Hint: These votes typically go in favor of cannabis.
- The U.S. House of Representatives passed the SAFE Banking Act, which would allow banks and credit unions to provide services to cannabis companies. Although the Senate has yet to take up the bill, there’s a strong chance that the legislation will be part of a presidential platform in 2020 as a candidate tries to win the youth vote.
- Canada legalized recreational use countrywide in October 2018. This cleared the way for legal edible products, vapes and infused drinks. These will hit the shelves in December, generating positive buzz in the industry.
Now is the time to start buying pot stocks to get ahead of the next bull market. And I’m paying close attention to this trend for readers of my Automatic Fortunes newsletter.
In fact, I just released a new cannabis trade today that new readers can still get in on.
To learn more about Automatic Fortunes — and how to get access to this trade — click here.
Regards,
Editor, Automatic Fortunes
P.S. The cannabis industry is just one of the many opportunities that I’m tracking closely right now in Automatic Fortunes. To learn more about one that I’m particularly excited about, click here.