Until recently, there was little hope that there would be any reason to be optimistic about marijuana legalization in the near future. The Republican Party has traditionally taken a hard line on drugs. With current President Joe Biden in office for almost four years now, there are no signs that significant changes are on the horizon. While there is hope that marijuana will be rescheduled and no longer a Schedule I substance, that would still be a long way from legalization, which many investors and businesses still hope for.
However, the news that President Biden will not seek re-election opens the door to a new possibility. A new presidential candidate may be more likely to take significant steps toward marijuana reform, potentially leading to legalization. While there is still much uncertainty ahead, cannabis investors may have more reason than ever to be optimistic about the prospects for legalization.
Kamala Harris may be more likely to advocate for sweeping reforms
Vice President Kamala Harris appears to be the odds-on favorite to secure the Democratic nomination. And that could be a very positive development for cannabis investors, as Harris would be much more likely to push for marijuana reform as president.
In 2019, Harris said she supported legalizing marijuana, even admitting to trying it in college. She has also been critical of the drug’s current classification as a Schedule I substance, stating, “Marijuana is considered as dangerous as heroin and more dangerous than fentanyl, which is absurd, not to mention downright unfair.”
If Harris wins the nomination, investors will learn more about her platform and plans (if any) for marijuana reform. Since most of the population supports some form of cannabis legalization, it could become a political issue that could sway voters, and so there is a significant incentive for her and any other potential candidate not to overlook it as a major issue.
Cannabis Stocks That Could Rise on Legalization Hopes
Whenever marijuana legalization is discussed, cannabis stocks often skyrocket in hopes that reform is finally coming to the industry in the U.S. Although marijuana is legal in Canada, many Canadian-based cannabis companies have their eyes set on expanding into the U.S. due to the many growth opportunities. And while cannabis is legal in dozens of states in the U.S., it remains illegal at the federal level, meaning it cannot cross state lines or federal borders.
Legalization would be what Canopy growth (NASDAQ: CGC) has been waiting a long time for it. Five years ago, the company entered into a deal to acquire a multi-state marijuana operator Surface ownership when marijuana became legal. That didn’t happen, so Canopy Growth created a special purpose vehicle, Canopy USA, to house its U.S. investments and execute the Acreage deal. News of marijuana legalization would certainly send the stock higher, even if it’s not the safest pot stock to own.
There is also Tilray Brandsthat is positioning itself for growth opportunities in the U.S. market. It is expanding into alcohol brands to expand its presence in the U.S. and potentially one day capitalize on those acquisitions and produce cannabis-infused beverages, which could be a major growth opportunity for not only cannabis companies, but alcohol companies as well.
A sometimes forgotten group of pot stocks are the multi-state operators, including Real Cannabis And Curaleaf Holdingswhich are among the largest cannabis companies by revenue. Legalization would remove many of the barriers for these types of companies, making it easier for them to obtain banking services, leverage economies of scale to expand their operations across states, and trade their stock on major exchanges like the Nasdaq and NYSE.
Is Now the Time to Buy Cannabis Stocks?
Investing in cannabis can be tempting, because there is certainly a lot of potential upside if legalization happens. But the problem is that cannabis investors have been holding on to that hope for years, and yet nothing has come of it. The danger is that if you buy cannabis stocks, you have to wait a long time for something to happen.
While Kamala Harris’ presidential victory could be good news for the cannabis industry, investing in pot stocks with the sole purpose of betting on legalization has proven to be a risky strategy. Investors should proceed with caution here, as there is still a lot of risk involved. And as tempting as it is to buy shares of Canopy Growth and Tilray Brands because of their low valuations, investors may be better off investing in an exchange-traded fund, which can help mitigate some of the risk associated with investing in pot stocks.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Trulieve Cannabis. The Motley Fool recommends Nasdaq and Tilray Brands. The Motley Fool has a disclosure policy.
President Biden’s decision not to run for a second term could be a huge catalyst for cannabis stocks was originally published by The Motley Fool
