Cannabis stocks are trading like the sector is no longer viable.
I do not believe that is the case. Here are three reasons why cannabis stocks should show strength over the next year or two.
3 Reasons for Long-Term Optimism for Cannabis Stocks
1. We will see federal reform progress
It is always risky to trust politicians. But President-elect Donald Trump campaigned on the mantra “promises made, promises kept.” To win over voters, Trump said he supports all the key changes that would help cannabis stocks: Rescheduling, banking reform embodied in the SAFER Banking Act, and legalization or at least decriminalization.
Next year, it will be time for him to show signs of coming through. He’s got a busy agenda, taking on big issues like immigration and government spending. But if he lives up to “promises made, promises kept,” cannabis stocks could move higher.
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Analysts and cannabis company insiders remain positive. Take a look:
“We don’t plan to change our fair value estimates on the election outcomes alone, as we still think it’s a question of when and not if prohibitions ease,” wrote Morningstar cannabis sector analyst Kristoffer Inton in a November 12 note.
“Throughout his campaign, President-elect Trump confirmed his support for commonsense cannabis laws, support for SAFE banking and for rescheduling, the fact that no one should be arrested for personal cannabis use, and a state’s rights approach to cannabis legalization,” noted Cresco Labs (CRLBF) CEO and co-founder Charlie Bachtell said in his earnings call. “We look forward to working with the incoming administration to follow through on its commitment to developing a commonsense approach to cannabis laws including the passage of SAFE banking, rescheduling, and the fact that no one should be arrested for personal cannabis use.”
“For the first time ever, both presidential candidates publicly touted pro-cannabis stances on the campaign trail,” said Curaleaf (CURLF) CEO Boris Jordan in his earnings call. “With President-elect Trump in office, we are hopeful that real federal reform, including rescheduling and safer banking, can pass. We’ve already been in touch with his transition team to ensure that the new administration follows through on its commitments made to the industry. In our expertise, historically, President Trump has put an effort to deliver on his campaign promises, and we see no reason why this time would be different.”
“A Republican administration and Republican control of both Houses is what is going to get you SAFE banking. I think it is also going to be full speed ahead with rescheduling,” said AYR (AYRWF) interim-CEO Steve Cohen in a recent media interview. “It is a very good bet that the Trump administration on the federal level is going to be very good for cannabis. Overall, when you look at the political landscape bleak though it is for other reasons, from this industry standpoint I think we are in good shape.”
It makes sense that Trump might follow through on his cannabis promises. Polls consistently show that’s what the majority of voters on both sides of the aisle want.
2. Foreign cannabis markets are growing rapidly
Two cannabis companies reported very robust third-quarter sales growth in Europe, Israel, and Canada – Cronos (CRON) and Curaleaf. Europe has a consumer market bigger than the one in the U.S., and it continues to move forward with cannabis market reforms.
3. Cannabis insiders are buying stock
Cannabis company insider purchases of their own stock have been absent for years. That changed in the current pullback. This is a bullish signal. Trulieve Cannabis (TCNNF) insiders recently bought around $470,000 worth of stock in mid-November at prices up to $7.19. A broad cluster of insiders from the CEO on down purchased. Cluster buys are a bullish signal in insider analysis. Tilray (TLRY) CFO Carl Merton purchased $35,400 worth of stock in mid-November at $1.36 a share. These purchases are not huge. But the buying represents a change in sentiment among insiders, which is a positive.
For more details on cannabis sector trends and names in the space to consider owning, subscribe to Cabot Cannabis Investor here.
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