The Smart Money: Global Cannabis Stock Index on a Tear
“Once bitten, twice shy,” goes the saying, and cannabis investors could be forgiven for feeling that way. The road to legalization has been bumpier than many expected, and the cannabis market that looked like a can’t-miss opportunity for investors has largely taken a beating over the last couple of years.
There are plenty of reasons why marijuana as an investment has been challenging: Canadian companies have disappointed with sales and profit figures, black market dealers have continued to do booming business in many U.S. states, and perhaps most prominently, multiple attempts to decriminalize cannabis at the federal level have stalled.
Now, however, the Global Cannabis Stock Index, representing the publicly-traded market for both medicinal and recreational sales, has soared some 35% since the start of the year. While the index has yet to approach its high-water mark of early 2018, this represents a significant bounce-back from most of 2020. The Marijuana Index, which tracks leading North American stocks, has followed a similar trajectory. Why?
Part of the optimism is an educated bet that with a Democrat-controlled Senate, a path to federal legalization is finally at hand. Beyond that, there is likely to be more pressure to finally get this done from state legislators hungry to make up pandemic-related budget shortfalls.
On the consumer side, in one of the few positive outcomes from the pandemic, consumption is up, a rising tide that potentially lifts all boats. And by offering conveniences like online ordering, curbside pickup and even delivery, legitimate dispensaries have put more of a dent in the black market.
Are we there yet? Not quite. The cannabis-focused SOJE Fund estimates that 78% of all U.S. sales in 2020 were still done on the black market, so clearly there’s more work to do. But if Congress can finally take the necessary steps, and if states can roll out legalization in ways that don’t strengthen the black market – two big ‘ifs’ – investors could have a much nicer ride in the not-too-distant future.
