Other sectors have been much hotter than marijuana stocks. And that makes them an absolute bargain today.
Since Covid began, I’ve been on a text chain with some high school buddies, discussing everything from our families to politics to obscure ‘90s movie references. The other day, the conversation pivoted to stocks. It started with this single line from my friend Frankie: “Tesla stock split. Get it now!”
From there, everyone else—most of whom are pretty investment-savvy, including one who works in the industry like me—weighed in with their own opinions on what to invest in today.
“Bitcoin is the play!” one of them declared.
“QQQ is my everything,” said another.
“ARK Innovation ETF (ARKK) has been killing it too,” another retorted.
Tesla (TSLA), Bitcoin, The Invesco QQQ Trust (QQQ) and a fund that invests in what it calls “disruptive innovation” technologies—all good ideas, all red-hot investments. Average year-to-date gain among them? 166%. Can they repeat that performance in the next year? Probably not. Not with Tesla stock trading at roughly 1,100 times trailing earnings; nor with Bitcoin’s volatile history; nor with tech stocks (which populate the QQQ and the ARKK) trading at a higher price relative to the rest of the market than they did just before the dot-com bubble burst.
Don’t get me wrong: I’m not pooh-pooh-ing my friends’ investment ideas at all. Invest in any one of those ideas now, and you’re likely to make money, probably even beat the market, over the long haul. Positive momentum and an upward-trending chart are, after all, powerful, bullish trends. Stocks/funds/currencies that have been going up for a while tend to continue going up. To paraphrase my boss, Tim Lutts: Investment trends tend to last longer than anyone expects.
But right now, I prefer to invest in something with a little more upside. So here were the only two words I contributed to my friends’ text chain: “Marijuana stocks.”
Why Buy Marijuana Stocks Now
Why? Well, after peaking in January 2018, the marijuana sector spent the next two years in a downward spiral, with marijuana stocks losing 85% of their value. Six months ago, I would have said steer clear. No sense in trying to catch a falling knife, as they say. Since March, however, marijuana stocks have more than doubled … and yet they’re trading at less than a third of their 2018 peaks, as this long-term chart of the North American Marijuana Index shows.
Now let’s take a look at a chart of projected U.S. retail sales of marijuana over the next four years (chart courtesy Marijuana Business Daily):
As more states legalize marijuana, U.S. marijuana sales are expected to at least triple by 2024. Having already doubled in the last four years, and with growth expected to accelerate as legalization spreads, the marijuana industry is one of the fastest-growing markets in the country. And yet marijuana stocks, on the heels of a monster, two-year crash that was partly the result of rampant legalization already being priced in, trade at about 31% of where they were more than two and a half years ago, even after a big run-up in the last six months.
Thus, over the next several years, I believe marijuana stocks will not only outpace TSLA, Bitcoin, the QQQ and the ARKK—I think they’ll outpace just about any other growth sector out there.
Which marijuana stocks should you invest in today? For that, I recommend subscribing to our Cabot Marijuana Investor advisory, run by the aforementioned Tim Lutts. Tim weathered the two-year marijuana stock selloff, and boasts an average gain of 142% on his 10 remaining marijuana stock holdings.
To learn their names, click here.