Sudden Pot Stock Rally: CGC & TLRY
We just saw a sudden rally in pot stocks so I’m taking over your Thursday Bold Profits Daily to tell you what’s going on.
The Senate unanimously voted through a bill that would expand research into marijuana, especially for medical use.
This is a big moment. And two companies are betting on U.S. legalization — Canopy Growth Corp. (CGC) and Tilray Brands Inc. (TLRY).
The market is now looking ahead.
I’m going to share a list of the HUGE pot stock deals we’ve seen in the past year that show cannabis companies are still cheap right now.
But I see so much growth ahead. Should you buy? I have one way you can gain exposure now. Watch here:
Hey everyone. Welcome to today’s Bold Profits video. Ian here filling in for Pat this week. I want to go over what’s going on with pot stocks. Last week we saw a sudden rally across the pot sector in the stock market.
Will The Senate Vote To Legalize Marijuana?
This mostly had to do with the Senate unanimously voting through a bill that would expand research into marijuana, especially for medical use. There are a couple bills in the House aiming to decriminalize marijuana on a federal level. This is something that would be a big moment of progress for national legalization.
The first one is expected to be voted on tomorrow and the second one is expected to be voted on toward the end of next month. We could see some big news coming out soon. It wouldn’t be too surprising if the House votes it through tomorrow and then it goes to the Senate.
That’s where the question really lies. I think there’s a few reasons why now is the most likely scenario we’ve seen for the Senate to vote it through. Number one being the fact that they voted through the research bill that gives companies a lot more privilege in using marijuana for medical use.
Number two, the government wants to make more money through taxes. The bill being voted on tomorrow would give them a federal marijuana tax. And three, the midterms coming up later this year I think by now it’s obvious that marijuana legalization is a bipartisan supported issue.
I think we’re going to see politicians start to reflect that sooner rather than later, especially when they are up for reelection in just a few months. More than likely, I think we’re going to see progress being made in the Senate on marijuana reform.
What Marijuana Stocks Are Going To See Good Growth?
Decriminalization is a big first step. This could be very big news for Canadian marijuana companies because they are not allowed to do business in THC in the U.S. until it is federally legalized. We’re still a ways away from that, but decriminalization is a huge first step.
That’s when the market is going to really price in federal legalization. We saw that last Thursday. That was not a normal move in these stocks when the Senate passed this bill. To me, that was a signal the market was surprised. It’s pricing in future benefits now.
It’s going to price in future legalization and up its estimates for growth in Canadian companies who are looking to expand in the United States. I am going to cover two today and give some details on why these are going to go up quite a bit if this continues to make progress.
The first one is Canopy Growth. They have been looking to expand into the U.S. for a while. Back in 2019 they had a deal with this company Acreage. They spent $300 million to buy the rights to the company pending U.S. legalization of THC. They were looking years ahead.
They spent quite a bit of money to do that. More recently, they spent another $300 million to buy the rights to Wana, which is the biggest edibles company by revenue in the United States. They are making big strides there.
I believe they own convertible debt in this other company TerrAscend which is a fast growing company in the United States. They are also expanding their CBD business. They can sell CBD products in the United States at this point and they have taken full advantage of that.
In 2020, none of their revenue came from the United States. Last year, 15% of their revenue came from the United States. I think in the most recent earnings call they reported that their CBD revenue is up 250% in the last nine months.
They have been making a full effort to expand into the U.S. Obviously, a step toward legalization would be good news for them. I would expect their stock to go up from here if we make good progress on this.
The other company is Tilray. They had that huge merger with Aphria. They were both looking to expand into the U.S. Obviously the joint company is looking to expand as well. They have ownership to quite a few alcohol companies. One of them is called Breckenridge Distillery.
That is a company that has locations in all 50 states. They also have an investment in Sweetwater, which is a big company in the Northwest. They plan on turning these into companies that not only produce alcoholic beverages, but companies that produce cannabis-infused beverages.
That has been a very successful business in Canada and also I believe will be extremely successful in the U.S. I think these companies are doing the right thing. Again, they have been making huge strides for years to make sure they have a good spot in the U.S. market when it becomes legal.
Huge Marijuana Deals That Were Made!
Just to throw a couple numbers out there, the sales for the total cannabis market in the U.S. was around $25 billion. Compared to Canada it’s six times higher. Canada had $3.9 billion in cannabis sales last year. The companies that are going to see real growth are the ones not only doing business in Canada but the ones expanding in the U.S. for when it does become legal.
And I do believe that’s inevitable at this point. Decriminalization is a big first step. Even in the U.S. there are a bunch of companies who are making huge acquisitions, which suggests the price of these companies right now is cheap. Companies are seeing good deals and acquiring other companies for hundreds of millions, if not billions.
I have a list here that I want to read of the huge deals we have seen in the past year. April 8, 2021, Canopy buys Supreme for $35 million. May 10, 2021, Trulieve buys Harvest Health for $2.1 billion. August 17, 2021, Tilray spends $165.8 million in a U.S. company.
They had an interesting workaround with this one. They didn’t buy the stock of the company. They actually bought convertible debt and warrants for the company. Technically they are not invested in the THC industry in the United States, but when it becomes legal they can exercise those derivatives into shares of stock.
Going on with the list, October 14, Canopy buys the rights to Wana for $247.5 million. Again, that’s not to buy the company. That’s to buy the rights to buy the company, which suggests demand for market share in the U.S. is insanely high even though the market isn’t pricing that in.
November 8, 2021, Curaleaf – a U.S. company – buys Tryke for $286 million. February 1, 2022, Verano Holdings in the U.S. buys Goodness Growth for $413 million. Most recently, March 23, Cresco Labs – one of the biggest and after this I believe will be the biggest in the U.S. based on revenue – is buying Columbia Labs for $2 billion.
There’s huge consolidation right now in marijuana companies. These companies are willing to bet nine to 10 figures on their competitors because they see value in doing so. The stock market has not represented that whatsoever. MJ, the main ETF, is down 75% from where it was last February.
I see some huge potential in these stocks. I don’t think they are representative of where these companies are headed in terms of growth. The main factor here is U.S. legalization. The market has not been pricing this in. With this legislation now on the table, I’m sure it’s going to pass the House and more likely than ever it’s going to pass in the Senate too.
I am more optimistic than ever about decriminalization and legalization in the near future. Keep in mind, the market prices things well in advance. Just with that Senate bill, the market went from 0 to 100 just thinking there was a chance marijuana is legalized in the U.S.
That was a wakeup call for the market. I think it’s the beginning of a huge recovery for these stocks. Going forward, the companies I mentioned – CGC and TLRY – I think those are going to do really well. If you want to buy an ETF, keep in mind this is not financial advice, the one I have mentioned before is MJ.
They own a lot of Canopy and Tilray. I think marijuana stocks are down a ton, but they are not out. I think the market is finally waking up to these stocks and seeing the potential they have, especially these companies that are planning on expanding into the U.S.
I hope this was helpful. I hope anyone who has been holding onto pot stock through this period – I know it’s been painful – but I hope this provides some reassurance to you. Let me know if you have questions. Thank you for watching and I will see you tomorrow during the IanCast.
Oh, I got a ton of questions from you on crypto last week. That’s awesome! So tune into my IanCast Crypto Corner tomorrow for some answers.
Have questions about pot stocks? Shoot them over to BoldProfits@BanyanHill.com!
Editor, Crypto Flash Trader
P.S. It’s not just pot stocks. I’ve been #BOP (bullish, optimistic, positive) on all of our growth stocks even through the worst of the volatility we’ve seen.
Because the growth, innovation and technology hasn’t slowed. America 2.0 is still disrupting entire industries.