Up until recently, there wasn't a whole lot of hope that there would be any reason to be optimistic about marijuana legalization in the near future. The Republican party takes a traditionally hard stance on drugs. Current President Joe Biden has been in power for nearly four years now, and there hasn't been any sign that significant change is coming. While there is hope that marijuana may be rescheduled and will no longer be a Schedule I substance, that would still fall well short of legalization, which many investors and businesses are still hoping for.
However, the news that President Biden will not seek reelection opens the door to a new possibility. A new presidential candidate may be more eager to make significant moves on marijuana reform, potentially leading to legalization. While there's still plenty of uncertainty ahead, cannabis investors may have more reason than ever to be bullish on the prospects for legalization.
Kamala Harris could be more likely to push for significant reform
Vice President Kamala Harris looks to be the odds-on favorite to lock up the Democratic nomination. And that could be an extremely positive development for cannabis investors, as Harris would be much more likely to push for marijuana reform as president.
Back in 2019, Harris said she was in favor of legalizing marijuana and even admitted to trying it in college. She is also critical of the drug's current classification as a Schedule I substance. Harris stated, "Marijuana is considered as dangerous as heroin and more dangerous than fentanyl, which is absurd, not to mention patently unfair."
If Harris ends up winning the nomination, investors will learn more about her platform and plans (if any) for marijuana reform. With the bulk of the population supporting some sort of cannabis legalization, it has the potential to be a political issue that could sway voters, and thus, there's a significant incentive for her and any other potential candidate to not overlook it as a key issue.
Cannabis stocks which could rally on legalization hopes
When there's talk of marijuana legalization, cannabis stocks often soar on the hopes that reform could finally be coming for the industry in the U.S. While marijuana is legal in Canada, many Canadian-based cannabis companies are eyeing U.S. expansion for its plentiful growth opportunities. And even though cannabis is legal in dozens of states in the U.S., it remains illegal at the federal level, which means it can't cross state lines, nor can it cross the federal border.
Legalization would be what Canopy Growth (NASDAQ: CGC) has long been waiting for. Five years ago, the company entered into an agreement to acquire multi-state marijuana operator Acreage Holdings once marijuana became legal. That hasn't happened, so Canopy Growth has created a special-purpose vehicle, Canopy USA, to house its U.S.-based investments and execute the Acreage deal. News of marijuana legalization would surely send the stock flying, even though it may not be the safest pot stock to own.
There's also Tilray Brands, which has been positioning itself for growth opportunities in the U.S. market. It has been expanding into alcohol brands as a way to build up its presence in the U.S. and potentially, one day, take advantage of those acquisitions and produce cannabis-infused beverages, which could be a big growth opportunity for not just cannabis companies but alcohol businesses as well.
A sometimes forgotten group of pot stocks are the multi-state operators, including Trulieve Cannabis and Curaleaf Holdings, which are among the largest cannabis companies in terms of revenue. Legalization would remove many obstacles for those types of businesses, making it easier for them to obtain banking services, leverage economies of scale to expand their operations into different states, and allow their shares to trade on major exchanges such as the Nasdaq and NYSE.
Is now the time to buy pot stocks?
Investing in cannabis can be enticing as there's certainly a lot of potential upside if legalization occurs. But the problem is that cannabis investors have been holding onto those hopes for years, and yet nothing has materialized. The danger is that if you buy pot stocks, you could end up waiting for a long time for something to happen.
While Kamala Harris winning the presidential election could be great news for the cannabis industry, investing in pot stocks solely for the purpose of betting on legalization has proven to be a risky strategy. Investors should tread carefully here because there is still plenty of risk out there. And as tempting as it may be to buy shares of Canopy Growth and Tilray Brands because of their depressed valuations, investors may be better off investing in an exchange-traded fund, which can help reduce some of the risk that comes 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.
