Cannabis stocks have their best day in months on legalization-friendly news
Defining the relationship... with the law. Marijuana stocks got high last week on two hits of legalization news (sorry, had to). Aurora Cannabis shares popped 9% while Canopy Growth and Tilray surged over 24%. The pro-weed news:
- Sen. Kamala Harris said Joe Biden would decriminalize marijuana at the federal level (if elected) during the VP debate on Wednesday.
- Vermont Governor Phil Scott said he would let the legalization of recreational marijuana move forward in his state.
Hash out the deets... While recreational pot use is legal in 11 US states, marijuana is still an illegal Schedule I drug at the federal level, along with LSD and heroin. That's why it's basically impossible for American cannabis stocks to trade on US exchanges. Aurora, Canopy, and Tilray (which trade on US exchanges) are Canadian. Expanding the legal pot market is key to their success — especially since the past two years have been a buzz kill...
- The late 2018 "weed bubble" has popped. Demand for weed in legalized places hasn't met hyped hopes. Pot companies over-produced and lost billions.
- Since the 2018 highs, Aurora and Tilray shares have lost ~95% of their value and Canopy has dropped 65%.
Investors feel uncomfy in the legal gray area… Since soaring on legalization in Canada, cannabis stocks have taken a hit partly because companies haven’t DTR’d with the US government. Their illegal federal status not only complicates costs and access to capital, but also limits the size of their market. Last week’s boost suggests weed needs to become federally legit for canna-companies to reach the next level.