Marijuana stocks are soaring in 2019.
The bullish 2018 momentum in cannabis stocks has continued in 2019, with several popular U.S.-listed stocks hitting new highs this year. Canopy Growth Corp (ticker: CGC), Aurora Cannabis (ACB) and GW Pharmaceuticals (GWPH) are just three examples of cannabis stocks that are each up more than 55% already in 2019. Roth Capital Partners analyst Scott Fortune recently took a deep dive into the cannabis business. Despite huge gains in cannabis stocks, Fortune still has plenty of reasons to expect additional upside in the long term. Here are 13 reasons investors are buying cannabis stocks.
The U.S. cannabis market is huge.
The cannabis industry offers investors a rare opportunity to gain exposure to a high-growth industry with a massive addressable market that is virtually untapped. Roth Capital Partners estimates the U.S. cannabis market at roughly $11 billion today, but Fortune says it will double to $23.4 billion by 2022. Over time, he says that market could expand further to between $59 billion and $78 billion, up to seven times its current size. BDS Analytics estimates the U.S. cannabis market is growing 23% annually, and Roth Capital Partners says it represents at least 25% of the global cannabis market.
The U.S. will decriminalize cannabis.
The biggest long-term cannabis stock catalysts will be federal decriminalization of marijuana in the U.S. Experts are divided on if and when U.S. federal decriminalization will happen, but Fortune says it will open the floodgates for cannabis investors. The tide is slowly turning in favor of federal legalization among U.S. politicians. The Democratic Party voted in 2016 to add removing marijuana as a Schedule I substance to its party platform. President Donald Trump has said he is in favor of state-by-state legalization, although he has not indicated he is in favor of federal legalization.
The States Act could provide a near-term boost.
Federal legalization could be years down the line, but cannabis investors may not have to wait that long to get some major legislative relief. The States Act is a bill with bipartisan support that would block the federal government from interfering in the cannabis business in states where it is legalized. The States Act would provide cannabis companies in certain states with access to banking, freeing them from the astronomically high tax rates they currently pay. Fortune says even Trump may be forced to support the States Act if cannabis becomes a major issue during the 2020 campaign.
Marijuana stocks should get access to institutional investors.
A major reason why the States Act could provide explosive upside for cannabis stocks is because it would provide them with much-needed access to capital. Operating a federally banned cannabis business in any U.S. state today is a gamble for cannabis entrepreneurs. However, providing credit to these companies is also a big risk for banks. Fortune says cannabis companies are starved for banking and will need massive amounts of capital in coming years. If the States Act is passed, banks and institutional investors that have shied away from the marijuana business would have federal protections for the first time.
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