For many pot stocks, their share prices can often rise or fall rapidly depending on the outlook for marijuana legalization in the U.S. That’s because there is significant growth potential in the industry, but a lot depends on whether there is progress on legalization both in more states permitting access and overall federal legalization.
One stock that normally sees significant gains when there’s talk about the possibility of marijuana legalization or any type of reform is Canada-based Tilray Brands (NASDAQ: TLRY). Over the years, it has branched out into alcohol to be less dependent on just cannabis for growth. And its Chief Executive Officer Irwin Simon says he believes that under the incoming Republican administration, marijuana legalization could happen.
When Donald Trump won the U.S. election in November, pot stocks almost instantly crashed. The AdvisorShares Pure US Cannabis ETF has lost close to half of its value since Nov. 5, as many investors saw news of a Republican government taking over as bad news for the industry, given that the party typically takes a hard stance on drugs.
But Simon remains optimistic. In a recent interview with Fox, he said he believes that at some point during the Trump administration, marijuana legalization will happen. He points to the importance that the industry could have for the overall economy and the tax dollars it could bring in. In New York state alone, cannabis sales have totaled around $1 billion this year.
Nationally, the cannabis market could be worth as much as $76 billion by the end of 2030, according to estimates from Grand View Research, whose analysts project the industry will grow at an annual rate of 12%. But how much growth is actually achieved over the next five years will undoubtedly depend on how much progress is made on legalization.
This isn’t the first time a cannabis CEO has been bullish on marijuana legalization, and it likely won’t be the last, either. It would be unlikely for Simon to come out and say it’s all over and to come back in four years and hope that there will be better chances under a different administration.
Instead, he’s always going to want to focus on the positive. In Trump’s case, Simon is focusing on the next president’s business acumen and the potential that he will approach cannabis from a practical sense in terms of how many jobs and how much tax revenue the industry could bring in.
But investors have unfortunately been here before. For all the optimism around marijuana legalization in the past, there have been no significant changes in recent years to suggest legalization will happen soon. During Trump’s campaign, he did appear to be open to the idea of loosening restrictions around marijuana, saying, “We do not need to ruin lives and waste taxpayer dollars arresting adults with personal amounts of it on them.”
But he did not make any significant effort during his first administration to legalize marijuana. His stance may have changed since then, but it’s still debatable how much of a priority it would be for him, and how likely it would be for any marijuana bill to pass a Republican-controlled House and Senate.
Whether you should consider investing in pot stocks comes down to how patient you’re willing to be. If you’re looking at the next few months or even the next few years, then there may not be a lot of progress and significant returns to make cannabis a worthwhile investment. Unless you’re prepared to hang on for at least five years, you may be better holding off.
The good news is that with valuations so low in the cannabis industry these days due to such a tepid outlook for legalization, it could be a good time to buy discounted pot stocks and hang on for the long term. But even then, it’s not a suitable strategy for risk-averse investors.
Tilray Brands is one of the largest, best-known pot stocks, and it has continually incurred losses. During the trailing 12 months, its net loss totaled $212.6 million. The vast majority of investors will probably be better off pursuing safer growth stocks. But if you have the time, patience, and money to spare, there is a bullish case to be made for investing in pot stocks for the long run.
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