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Why It’s Finally Time to Buy Marijuana Stocks Again

Marijuana stocks have been some of the worst performing stocks for the last few years. Couple the abysmal sentiment with some positive state-level trends and it might be time to buy.

Cannabis Plants

One unfortunate truth about stock market headlines is that, all too often, they’re more noise than signal. That leads to investors being bearish when the market is at its lowest (cheapest) and overly bullish when the market is at its frothiest (most expensive).

It’s why contrarian investing is a profitable endeavour. Unfortunately, it also means that investors end up doing the wrong thing all the time.

A better course of action would be to listen to a piece of advice from Warren Buffett: The market should serve us, rather than influence our moods.

If am right about the underlying bullish trends in cannabis stocks compared to the extreme negative sentiment, the market is serving up an opportunity to buy stocks in the space.

One big underlying bullish trend: States continue to make progress on legalization, cannabis sales, and tax revenue growth. States that could legalize cannabis in 2023 include Delaware, Hawaii, Maryland, Minnesota, Ohio, Oklahoma, Pennsylvania, North Carolina, and Wisconsin, say industry experts.

Here are a few examples of what they are talking about.

State-Level Support for Cannabis Stocks

In Minnesota, another House committee approved a bill to legalize recreational marijuana sales. That brings the total to nine committees approving the reform. An additional Senate committee also approved the bill, bringing the Senate total to six. Gov. Tim Walz (D) supports reform. Former populist governor Jesse Ventura also backs the policy change. In a departure from the approach used in many states, municipalities would not be allowed to ban marijuana businesses.

A bill to legalize medical marijuana continues to make progress in North Carolina when the state’s Senate Judiciary Committee recently held a hearing on the proposal. In a press interview, House Speaker Tim Moore (R) suggested reform has a good chance of being approved. He said more than half of lawmakers back medical cannabis reform. “I think there’s been a change. We have a lot of new members.”

Gov. Tony Evers (D) of Wisconsin included a medical and recreational marijuana use proposal in his budget request in mid-February. A majority of voters in the state support the policy change, but it faces resistance in the Republican-controlled state legislature. Prior efforts by the governor to pass legalization have failed.

The medical marijuana patient count in Florida grew 71% in the past two years, says Christopher Kimball, the state’s director of the office of medical marijuana use. This confirms that sales growth for recreational cannabis might also be robust, if or when it is ever legalized. Voters may have a say on recreational use legalization on the Florida ballot in 2024.

In Illinois, the governor says the cannabis sector has created over 30,000 jobs since recreational use was legalized in 2020. Illinois collected $445.3 million in tax revenue from $1.5 billion in cannabis sales last year. Other states considering legalization have no doubt noticed.

But what about that negative sentiment? Why is sentiment towards the group so negative and could that change?

The key factor is that last December, politicians in Washington, D.C. signaled that there would likely be progress on key reforms that would let banks serve cannabis companies. When the politicians failed to come through, cannabis stocks plummeted by 40% or more. Investors got hurt and they are still trying to recover from the shock. Few investors are counting on any progress on legal reforms from the nation’s capital soon. However, there is an outside chance they could be wrong.

If you want to know more about why there’s still a possibility of federal changes on banking reform, other bullish trends for the group around the world, and which stocks might benefit the most, consider subscribing to Cabot SX Cannabis Advisor, where we cover some of the market’s most promising cannabis companies.

Michael Brush is an award-winning Manhattan-based financial writer who writes a stock market column for MarketWatch. He is editor of Brush Up on Stocks, an investment newsletter. Brush previously covered the stock market, business and economics for the New York Times, the Economist Group, MSN Money, and Money magazine.