Since August 5, the Horizons Marijuana Life Sciences Index (HMLSF) is down around 12.2%.
The general cannabis space is still under pressure. Sentiment is poor and there haven’t been any major regulatory breakthroughs.
Yet the bellwether stocks in the industry are posting record growth…
Tilray, GW Pharmaceuticals, and Cronos Group brought in more revenue than ever ($45.9 million, $72 million, and $7.7 million, respectively). And they’re posting record sales figures, too—even though only 11 states have fully legalized cannabis in the U.S.
So what’s going on here?
Well, it’s a disconnect between fundamentals and price.
As we’ve said before, this is par for the course in an emerging asset class; they’re volatile by nature. Sentiment swings wildly… One moment, cannabis stocks are darlings of the dance. The next, they’re ugly ducklings.
Our advice: Ignore the noise. Well-run cannabis operators are bringing in sales hand over fist. Losses are widening because they’re scaling up for even more sales—and ultimately, greater profits.
So today, I’ll share how to take advantage of this disconnect. But first, let me show you why legalization is so unstoppable…
Feds Getting on Board
Although you probably wouldn’t guess it by watching the mainstream financial news… the tide has already turned in favor of cannabis legalization.
One form of cannabis, hemp, is already legal at the federal level. And although marijuana is still federally illegal, it’s medically legal in 33 states and recreationally legal in 11.
On the legalization front, three major bills are working their way through Congress. They’ll make it a lot easier for institutional investors to jump into the cannabis space…
The SAFE (Secure and Fair Enforcement) Banking Act would prevent the federal government from applying sanctions to banks working with cannabis businesses. It would also allow financial institutions to invest in American pot companies without breaking federal law.
The STATES (Strengthening the Tenth Amendment Through Entrusting States) Act would ensure every individual state makes its own determination regarding the best legal approach to marijuana within its borders. It also amends the Controlled Substances Act to protect individuals and businesses acting in compliance with state regulations regarding cannabis from federal enforcement.
The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would remove marijuana from the Controlled Substances Act, decriminalizing it and allowing states to write their own policies.
Now, we don’t know if or when these bills will pass… but the writing is on the wall: Cannabis will eventually be legal at the federal level.
The Floodgates Will Open
Look, federal cannabis legalization is inevitable. And it’ll unlock billions in capital previously prevented from flowing into the cannabis space.
According to New Frontier Data, the global total addressable cannabis market (regulated and illicit) is $344 billion.
And Merrill Lynch estimates that non-intoxicating cannabis alone will disrupt $2.6 trillion worth of industries in the next few years. That’s larger than the alcohol ($232.7 billion), tobacco ($900 billion), and nutraceuticals ($126.3 billion) markets… combined.
But despite the growing wave of legalization, we’re still seeing a market disconnect between fundamentals and price. But again, this is normal for an emerging asset class. We’ve seen similar sentiment swings in the crypto space.
Fortunately, you can take advantage of the disconnect by placing asymmetric bets on great cannabis companies trading at a discount to their true value.
Look for best-in-breed operators generating tons of sales, with more cash than debt. They’ll be able to scale and generate big profits in the coming years as the cannabis legalization trend plays out.
If you want broader exposure to the cannabis space, consider the Cambria Cannabis ETF (TOKE). It invests in 20–50 of the top cannabis companies.
It includes pure plays such as Aphria and Aurora Cannabis… as well as indirect plays, like tobacco and alcohol companies tapping into cannabis.
Just remember, like cryptos, legal cannabis is an asymmetric bet. So you only need to risk a little on each idea to make a lot in return.
Expect plenty of volatility—but be thankful for it, too. The same volatility promises to launch this new asset class much higher in the coming years.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. As I mentioned, the legal cannabis trend is unstoppable. And after traveling the globe, I’ve found one tiny, private company that’ll get a boost from it.
You can get in it for just 50 cents a share today. And it’s expected to go public at $1 in the next few months. That’s as close to a guaranteed double as you can get. So let me show you how to profit right here.