Cannabis stocks are now trading like the group is no longer a viable sector.

I do not believe that is the case. True, companies continue to face pressure from price wars and unbridled issuance of permits for new stores in New Jersey and elsewhere.

But ultimately, the fate of cannabis businesses lies in the hands of politicians.

Given that the majority of Americans on both the left and the right favor cannabis legalization, it’s no surprise that marijuana has emerged as a significant campaign issue.

Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.

Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But obviously, some outcomes are better than others. Here are the three main scenarios, from best to worst.

Cannabis investors remain in a depressed state, despite several potentially bullish developments that could move stocks in the sector up significantly over the next year.

Talk about a terrible week for cannabis investors. The Drug Enforcement Agency (DEA), on Monday, torpedoed the sector by announcing a move that will significantly delay favorable legal reform.

What happened: The DEA now wants to hold a formal hearing on the Biden administration’s proposal to reschedule cannabis, before deciding what to do. The move dashed all hopes of rescheduling before the election – which many analysts had expected – since the hearing is set for December 2.

Cannabis is a highly politicized sector because it is extensively regulated.

The political news has been very good for cannabis. But cannabis investors have been slow to recognize this.

A late-July Fox News poll showed that Vice President Kamila Harris has caught up to and surpassed Donald Trump in five key swing states.

Cannabis stocks should have advanced on the news. Not only is Harris a better cannabis advocate than President Joe Biden, she’d obviously be more favorable to the sector than Trump.

Cannabis stocks are unloved and in the doldrums.

Typically, in the stock market, that’s the best time to buy.

Neglected stocks offer the best value, as long as there are potential catalysts on the horizon.

I believe that is the case with cannabis. You’ll just have to be patient. I think it is worth being patient for the possibility of 30%-50% gains when a catalyst strikes. There is no guarantee this will happen, but as I discuss below, the odds are good.

Cannabis stocks remain unloved by investors. This makes the group buyable because catalysts are on the horizon.

The tricky part now is that it is more difficult to predict that we may see a catalyst near term, or even when the next one will occur. Patience is required.

Here is a look at the four main potential catalysts.

Cannabis stocks have fallen sharply since the beginning of April. The AdvisorShares Pure U.S. Cannabis (MSOS) is down 15.4% since April 1. There are two reasons.

First, investor enthusiasm for stocks overall has waned, creating significant declines across indices. Because cannabis is perceived as a riskier sector, cannabis stocks decline more than most stocks when investors move into risk-off mode.

Second, many analysts and investors had hoped for visible progress on key catalysts by now – chiefly rescheduling and cannabis banking reform. They have been disappointed.

Our main Cabot Cannabis Investor portfolio has vastly outperformed this year, with a 38% gain as of the March 26 close. That was 15 percentage points better than the 22.8% gain for the New Cannabis Ventures Global Cannabis Stock Index. We’ve done 31 percentage points better than the 7.1% gains this year in the S&P 500.

Our Cabot Cannabis Plus Insider Portfolio is up 42.6% since I launched it on March 29 last year. That’s more than twice the 16.8% gain in the Russell 2000 index over the same time.

In my last update on February 14, I suggested cannabis stocks had fallen enough to be buyable ahead of the expected rescheduling catalyst. That was an opportune entry point.

As of the close February 23, the AdvisorShares Pure U.S. Cannabis (MSOS) and the leveraged version, AdvisorShares MSOS 2X Daily (MSOX), were up 12% and 20%, respectively.

Then investors got impatient again with the lack of progress on catalysts. As of the close February 27, 2024, volatile cannabis stocks had given back most of these gains. The MSOS was up 2.4% and the MSOX was up 1.7%. I think cannabis stocks have weakened enough to consider adding again (more on this below).

Our Cabot Cannabis Investor portfolio is up 35% this year. That’s more than 10 times the 3% gain for the S&P 500.

The broader cannabis sector has done well too, but not quite as well as our Cabot Cannabis Investor portfolio of the 12 best names in the space.

The New Cannabis Ventures Global Cannabis Stock Index and the ETFMG Alternative Harvest exchange traded fund (MJ) are up 14.5%. We’re up more than twice as much.

Our Cannabis Plus Insider Portfolio is up 39.3% since I launched it on March 29 last year. Here we have outperformed the market by threefold. The 39.3% advance compares to gains of 12.7% for the Russell 2000 index, and 22.3% for the S&P 500 over the same time. The smid-cap Russell 2000 is a more appropriate comp than large-cap names in the S&P 500. This portfolio invests in cannabis related companies that have the right kind of insider buying, and do not touch the plant.

Our cannabis trades continue to perform very well, beating the market by more than tenfold since the last update, depending on the index position considered.

The AdvisorShares Pure U.S. Cannabis (MSOS), is up 10.5%, and the AdvisorShares MSOS 2X Daily (MSOX) is up 18.7% since I last suggested getting long cannabis on December 13. I suggested both as proxies for the sector, at the time.

May the buyouts begin. Poor sentiment has pushed the values of cannabis companies so low, the strong are now buying the weak. Like the recent cannabis company insider buying, this is a signal that valuations may be close to bottoming here.

However, realistically, it could be a while before the sector recovers since we are dependent on politicians for progress.

The cannabis sector is taking a severe body blow because of election outcomes.

The big negative: Florida voters rejected Amendment 3, which would have legalized recreational use. Voters in North Dakota and South Dakota also rejected cannabis legalization.

Cannabis now has its highest election-year profile ever.

Both presidential candidates have highlighted their favorable positions on cannabis reform, obviously because voters in all the key swing states favor reform. Cannabis reform appears on the ballot in referenda in several states – most notably Florida.

Back on August 28 and September 3, I suggested buying cannabis stocks in the severe weakness that put a lot of cannabis investors in a deeply distressed state. I cited the excessive negativity and the potential for a bullish update from presidential candidate Donald Trump on his cannabis policy.

On September 9 we got the Trump update, and it was very bullish for the sector. Cannabis stocks moved up sharply.

The cannabis sector has a dream ticket with Kamala Harris and Tim Walz. Investors act like they haven’t even noticed. This seems like a big mistake.

The key takeaway: Cannabis stocks look buyable in the current bout of dramatic sector weakness. Cannabis investors are notoriously bipolar. Right now, they are in a dark mood. That’s usually been the best time to add to positions, especially when there are potential catalysts on the horizon like now. In today’s update, I outline the main ones and the possible timing.

Old-school value managers like Benjamin Graham and Warren Buffett used to have a funny way of describing their investing style.

They said value stocks were like cigar butts on the sidewalk that had a few puffs left in them.

I’d like to offer an updated version of this metaphor. I think cannabis stocks have a few more puffs left in them between now and the end of the year.

Cannabis names are thoroughly unloved and abandoned once again.

Since Halloween, the last seven times I have made a call in Cabot Cannabis Investor to buy the AdvisorShares MSOS 2X Daily (MSOX) in sector weakness, the exchange-traded fund has gone up 68% on average over the next one to seven weeks.

The last time I made a trading call to buy the cannabis sector was on May 29.

Since that was less than two weeks ago and the maximum time to profit after trading calls is seven weeks, I am not too concerned about the flat performance of cannabis stocks since then.

Cannabis stocks look buyable in the current weakness.

Cannabis stocks are always buyable when they are down, but there are potential near-term catalysts on the horizon. That is the case now. There are three to expect over the next few months, and possibly as soon as the middle of May.

Cannabis stocks are generally flat since I sent you the March 27 issue of Cabot Cannabis Investor.

Given the potential magnitude of near-term catalysts, I suggest continuing to hold exposure to the group, and accumulating on weakness. If you have zero exposure, consider buying some now. If you have full exposure, consider adding on any substantial weakness of 2%-4% or more in this highly volatile group.

Since I last wrote to you on February 28, cannabis stocks have fallen nearly 14%, using the AdvisorShares Pure U.S. Cannabis (MSOS) as a proxy for the group.

There are certainly good reasons why “the doubts” have crept back into the minds of cannabis investors, which I will explain in a second. But my take is that by now, the concerns may be fully priced in, so the group looks like a solid buy.

It sounds heartless to say, but successful investing is largely about exploiting the emotions of others.

The two biggest emotions to exploit in the market are obviously fear and greed. When investors are too fearful, it pays to exploit that emotion by betting the other way. And vice versa for greed.

Another common emotion to exploit is impatience.

Back on December 27 I suggested holding off on cannabis sector purchases given the group strength at the time. We had realized nice gains, and it did not make sense to chase the stocks. “I prefer to add on weakness rather than strength,” I wrote. I recommended adding on weakness of 2% to 4% or more in any of our portfolio names.

The AdvisorShares Pure US Cannabis (MSOS) and AdvisorShares MSOS 2X Daily (MSOX) exchange traded funds (ETFs) closed that day at 6.93 and 3.60, respectively, and went on to fall 4.5% to 9% over the next few trading days.

We continue to get positive signals out of Washington, D.C. for cannabis companies.

Cannabis stocks on Monday traded as if president-elect Donald Trump has abandoned his marijuana reform policies.

On Tuesday morning I suggested traders might want to take some profits in positions accumulated the week before, because of a possible dearth of catalysts on the near-term horizon. I also suggested maintaining long-term exposure to the group.

Back on August 28 after the close, I shared bullish commentary on the cannabis group which was melting down at the time.

Yesterday we learned that the Drug Enforcement Agency (DEA) has decided to hold an administrative law judge (ALJ) hearing on rescheduling cannabis. It is set for December 2.

The decision dashes all hopes of rescheduling before the election, sending cannabis stocks much lower.

Cannabis sector negativity and weakness persists, so the group continues to be a buy.


Now it is time to continue to average in at current prices, ahead of the next catalyst-induced move up.

Back on May 8, I suggested getting long cannabis as a contrarian trade because sentiment had turned dark, and there was a potential catalyst on the horizon.

Back on April 24 I suggested cannabis stocks looked like a buy in their weakened state. I singled out two ETFs for simplicity.

Cannabis stocks look attractive in the current weakness. While there will likely be more general market downside, a negative for cannabis since the group gets sold when sentiment shifts to “risk off,” two potential catalysts loom.

Cannabis stocks rallied hard Monday, particularly after the close when we learned that the Florida Supreme Court approved a referendum on legalizing the sale of cannabis for recreational use. Florida already permits medical use, but the change would expand the size of the Florida cannabis market significantly, especially considering Florida’s large tourist industry.

Cannabis stocks are up sharply – 20% or more – since I suggested buying them on weakness in a Cabot Cannabis Investor update sent to you on January 10.

Using my two favorite exchange-traded funds (ETFs) as proxies for the sector, the AdvisorShares Pure US Cannabis (MSOS) has advanced 20%, and AdvisorShares MSOS 2X Daily (MSOX) is up 37%.