The market seems down on cannabis lately, with marijuana stocks — as tracked by the ETFMG Alternative Harvest ETF (NYSE: MJ) — down a whopping 57% from their 52-week highs. That’s a shame, because there are some pot stocks that are definitely putting in bottoms right now.
More on that in a bit. First, let’s look at some of the recent cannabis news that is making headlines.
Marijuana demand is too damned high! At least in Michigan, that’s true. Recreational cannabis sales began Dec. 1 there. And those are booming. One store, Exclusive Brands in Ann Arbor, had 200 people lined up at the door when it shut down at 9 p.m.!
Demand is so high, dispensaries are forced to ration sales. Two stores report limiting sales of cannabis flower to 7 grams per customer. Another store is limiting customers to an eighth of flower, 15 vape cartridges, seven pre-rolls and two edibles.
I figure, ’cause it’s the season, they could throw in a partridge in a pear tree.
Supply issues also plagued several U.S. states, including California and Nevada, shortly after adult-use sales became legal. And Canada, the world’s largest market where recreational marijuana is fully legal, has also experienced shortages.
Michigan is expected to be one of the largest recreational marijuana markets in the United States.
That’s happening just as …
The USDA releases interim hemp regulations. They’re what you’d expect, with a few interesting twists. For example, farmers who want to grow hemp but live in a state that does not currently have a program can now apply for federal licenses. That includes Idaho, Mississippi, New Hampshire and South Dakota. Native American tribes can also apply for licenses.
Willie Nelson quits smoking marijuana. The 86-year-old singer/songwriter and iconic cannabis user has quit smoking for health reasons. But he’ll keep using cannabis. His son Lukas says: “Between vaping, edibles, gummies, drops, etc., I think it’s safe to say Willie will never stop enjoying Mary Jane!” Perhaps Willie will enjoy some of the fine edibles from his own Willie’s Reserve brand.
High taxes hold back legal sales. States eager for tax revenues are taxing legal cannabis to death. In other words, the taxes are so high, the black market is thriving. Here’s a chart from New Frontier Data that shows the problem …
You can see the vast majority of sales in many of these states continue to be illegal. That’s because legal weed has been taxed so much, it’s gotten way too expensive.
Just look at California. Medical cannabis has been legal since 1996 and recreational since 2016. But only 30% of total sales are legal. One reason: The state puts an 80% markup on pot, plus 15% sales tax plus a tax of $9.65 an ounce. Ouch!
All that tax revenue is about to add up … and explode as more states join the pot profit party. Here are …
11 states that could legalize next. There was a lot of sound and fury about legalization in 2019, but only Illinois and Michigan made the leap. Next year could be quite different.
- Arizona. A ballot initiative to legalize weed failed by only 3% in 2016. There is another proposal on the ballot for 2020. It legalizes cannabis for adults 21 and older and allows home cultivation of up to six plants per adult.
- Arkansas. A proposal is on the ballot to change the state’s constitution and make the leap from medical-only to recreational adult-use.
- Florida. The Sunshine State is currently medical-only as well. That could change in 2020, with three different efforts to put recreational cannabis on the ballot.
- New Jersey. Efforts to legalize stalled in the legislature this year, but proponents vow to try, try again.
- South Dakota. This state could legalize both medical and recreational marijuana if two ballot initiatives succeed.
- Pennsylvania. Efforts to legalize in the Keystone State got wrapped up in social equity initiatives this year. We’ll see what 2020 brings.
- New Mexico. Efforts in the legislature stalled this year. The governor is trying again.
- Montana. Can Montana legalize it? MontanaCan! That’s the name of the group pushing legalization in the Treasure State.
- New York. It certainly SMELLED like marijuana was legal the last time I walked down a New York street. But it’s not; rather, it’s just decriminalized. A bill for full legalization died in the legislature this year. The governor wants to give it another Big Apple try.
- North Dakota. Another state that defeated legalization on the ballot in 2018 that is going to try again in 2020.
- Virginia. A legalization attempt died in the legislature this year. The South shall rise again!
If even HALF these attempts succeed, that should provide a big boost for the U.S. cannabis market.
I’m still not keen on the big Canadian cannabis companies. They’re building expensive greenhouses while the price of pot in that country goes lower and lower.
However, there ARE great U.S. cannabis stocks with soaring sales and rising profits. They’re in the bargain bin right now. I just recommended one to my Marijuana Millionaire Portfolio subscribers.
If you like bargains and you like stocks with soaring growth, you should roll up your sleeves and get busy analyzing some of these stocks. The time to pick up pot-stock bargains is NOW.
All the best,
Sean
