What Cannabis & Hemp Stocks Benefit From Recent Legalization?
November 4, 2020, was a landmark day for the USA, and, surprisingly, it wasn’t due to this wild U.S. Presidential election. In fact, five new states in the country legalized marijuana. The cannabis industry continues to explode and investors are trying to figure out how to cash in. But what Cannabis & Hemp Stocks Benefit From Recent Legalization?
New Jersey, Arizona, Montana, and South Dakota legalized recreational marijuana on Tuesday while Mississippi voted to approve legalizing cannabis for medical use. South Dakota also voted to create a medical marijuana program for people with extreme medical conditions. With these measures, medical marijuana is now legal in 38 U.S. states including Washington D.C., according to this report from Fortune.
Oddly enough, this news didn’t translate into a rally for pot stocks. In fact, several cannabis stocks fell after the states legalized weed.
Cannabis companies like Aurora, Canopy Growth, and Cronos – all Canadian cannabis companies that are listed on U.S. exchanges – will realize minimal benefits from this ruling. Canadian cannabis stocks will simply not experience a rally unless cannabis legalization happens at the federal level in the USA. Depending on the outcome of the current 2020 Presidential Election, this might be more likely under a Biden/Harris administration.
What is the Path of Cannabis Legalization in the US?
New Jersey alone is projected to generate around $400 million in adult-use sales in a year and this figure might touch $950 million by 2024. This in turn translates into $63 million in state tax revenue and a further $19 million in local taxes. Nearby states like New York, Pennsylvania, and Connecticut will come under additional pressure to legalize weed to increase revenue for their constituencies. Tax revenues continue to be a major benefit for states to legalize cannabis.
As of now, cannabis laws in these newly legal states are pretty basic. In all four states that have legalized recreational cannabis, it is legal for adults 21 and over to possess up to one ounce of marijuana. Adults over 21 can grow up to six plants per household in Arizona and up to four plants for personal use in Montana. In South Dakota, adults can grow up to three plants for personal use.
But which cannabis companies will benefit from the new legislation the most? Cannabis multi-state operators (MSOs) stand to gain the most because they own multiple cultivation centers, processing facilities, and retail dispensaries across states that have legalized cannabis either for medical or recreational use.
When Can People Buy Marijuana in the Newly Legal States?
Arizona Even though weed has been legalized in Arizona, don’t expect a long line outside dispensaries just yet. The election needs to be certified first before people can legally start consuming. This is expected to happen in early December. People will then need to apply for licenses before they can start selling weed. The license application process will open up on January 19 and sales will probably start in March 2021.
Montana There are a couple of ballot initiatives that need to pass before adults can legally start using marijuana for recreational purposes. The Associated Press reports that possession and use of weed would be legal from January 1, 2021. It will be some more time until sales for recreational purposes start.
South Dakota Under state law in South Dakota, the new Cannabis ruling won’t become a law until the ballot measure takes effect. The date for this is July 1, 2021. That’s still almost nine months away.
New Jersey Even though the state has passed a vote for recreational marijuana, the drug will remain illegal until the legislators pass a bill decriminalizing it. Yesterday, Attorney General for the state of New Jersey, Gurbir Grewal said that there will be “no change in the enforcement of marijuana laws in the state until the Legislature and Cannabis Regulatory Commission passes legislation that decriminalizes the drug”. So, don’t go lighting up that joint just yet Jersey!
What Cannabis & Hemp Stocks Benefit From Recent Legalization?
As mentioned earlier, MSOs will benefit the most under the new rules. Major cannabis companies like Curaleaf and Green Thumb Industries will reap rewards in due time.
#1 Curaleaf
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Curaleaf (CURLF): This stock stands to gain the most as more states legalize weed. It has operations in 23 states with 95 dispensaries and 22 cultivation sites. It is one of the largest cannabis companies in the world. In fact, Curaleaf is one of the strongest cannabis stocks we follow.
It has seen its retail and wholesale revenues increase by 17% and 63% quarter-over-quarter. Q1 revenues for 2020 came in at $96 million and Q2 saw revenues grow an additional 21% to $117 million. It has 135 dispensary licenses and at a market cap of $5.11 billion. Will Curaleaf cannabis stock benefit from recent legalization? Curaleaf stock will certainly benefit from these newly legal states.
#2 Green Thumb Industries
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Green Thumb Industries (GTBIF): Green Thumb Industries has a market cap of $3.74 billion and like Curaleaf, it operates in New Jersey and Illinois. It also has a decent-sized market in Pennsylvania and Nevada. Green Thumb has licenses for 96 dispensaries in 12 states and will eye expansion in other U.S. markets in the coming year.
Forty-eight of these dispensaries are operational right now and when Green Thumb opens up the other half, sales are expected to grow exponentially. Around two-thirds of Green Thumb’s sales come from derivative products like edibles and vapes which are high-margin products allowing the company to report a positive EBITDA on a consistent basis. Will GTBIF stock benefit from recent legalization? We believe GTBIF will benefit substantially.
Other Cannabis Stocks to Watch
After its acquisition of Origin House, Cresco Labs has access to over 500 dispensaries in California. If it continues to expand its retail footprint, and enter these newly legal states, it’s sales will ramp up quickly. Canopy Growth (CGC) has made a play to acquire Acreage Holdings last year but this is subject to the legalization of marijuana in the U.S. at the federal level. Stay tuned as things progress with the U.S. presidential elections as this could come sooner than you think.
Sure, 2020 has been a wild ride for cannabis and hemp stock investors but the cannabis industry will certainly continue to grow and evolve. Market analysts expect the cannabis industry will have an annual value exceeding $75 Billion in the next decade. This means that, among cannabis stocks and hemp stocks, there will be plenty of winners and losers. The best thing cannabis and hemp stock investors can do is to research (or leverage algorithmic stock trading!) and do your due diligence!
What Cannabis & Hemp Stocks Benefit From Recent Legalization?
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