Another Big Win for Pot Stocks Sends Shares Surging

Pot Stocks Get Bank of America Boost

Three pot stocks recently saw their share prices rise after Bank of America Corp (NYSE:BAC) resumed covering them. Canopy Growth Corp (NYSE:CGC), Tilray Inc (NASDAQ:TLRY), and Aurora Cannabis Inc (NYSE:ACB) all rose in price following the resumed coverage.

But more importantly than the fast bump, this is a great sign for the future of the industry.

Of the three marijuana stocks that jumped, ACB stock came out on top (which makes sense, seeing as how TLRY stock and CGC stock had better performances in 2020).

Tilray stock was already on the rise due to its upcoming merger with Aphria Inc (NYSE:APHA).

Canopy Growth stock, meanwhile, saw the lowest growth of the three. Again, that makes perfect sense. Canopy Growth had the highest share-price growth among the trio in 2020. In other words, Tilray stock and Aurora stock had been heavily discounted, while Canopy Growth was considered to be more fairly priced.

Chart Courtesy of StockChart.com

Despite all this, Bank of America was the most bullish on Canopy Growth Corp, rating the company a “Buy” in its resumed coverage. The bank is projecting that Canopy Growth stock will gain about 28.5% within the next 12 months.

A Bank of America analyst said that Canopy Growth Corp’s “balance sheet, [management] team and partnerships position CGC well to enter the US if there is federal legalization” and that “CGC’s improving [earnings before interest, taxes, depreciation, and amortization] and cash flow make its shares attractive in the meantime.” (Source: “UPDATE: BofA Securities Reinstates Canopy Growth (WEED:CN) (CGC) at Buy,” StreetInsider.com, April 28, 2021.)

I largely agree with that assessment.

But aside from considering what this means for the three weed stocks in the near term, investors should focus on what it means for the long-term prospects of the marijuana industry.

There’s long been a struggle over getting institutional investors and large banks more involved in pot stocks.

There are many good reasons for this, not least of which is that the drug remains illegal in the U.S. at the federal level. Again, it makes total sense. Theoretically, any money made from marijuana companies could be seized by the federal government, should they so choose.

That’s very unlikely to happen, but for the banks, it isn’t worth the risk at this juncture (at least in their estimation).

But Bank of America has at least woken up partially. It’s bullish on the marijuana market as federal U.S. marijuana legalization becomes more and more of a certainty.

Long-time readers of mine (and Profit Confidential in general) will likely have come to that conclusion years ago. There’s simply no viable way that the legal limbo for marijuana in the U.S. can persist for much longer.

The “much longer” is the key part, of course, as that could mean one year or 10. I strongly doubt, however, that U.S. marijuana legalization will remain far off in the future.

The next Democratic president following Joe Biden will almost certainly include marijuana legalization in their platform (that is, if Biden doesn’t change his mind on pot legalization, an unlikely but not impossible scenario).

There’s even a better-than-zero chance that the next Republican president will be pro-pot legalization. There are quite a few right-wing politicians in the U.S. who support legalizing pot. What’s more, as the Republican Party seeks to reestablish itself following former President Donald Trump’s tenure, it could very well pivot toward hugely popular policies like marijuana legalization.

And, as time goes on, Americans who lived during the height of the War on Drugs will be followed by younger people who are more likely to see cannabis as a harmless substance rather than as a big, scary gateway drug.

So all that combines to create a very potent position for federal U.S. marijuana legalization.

Bank of America’s resumed coverage is sending a signal, in my view, that institutional investors are waking up to what many of us have already known.

And that’s great news for marijuana bulls.

After all, when the huge influx of capital floods the cannabis market from large banks and funds, we can expect share prices to skyrocket. This is part of the reason that U.S. pot legalization is so hotly anticipated among stock market analysts.

As the marijuana industry wages a war for legitimacy among the few remaining holdouts in American politics (and the U.S. population more broadly), established names like Bank of America go a long way toward lending some credibility and legitimacy to pot stocks.

So while the three aforementioned marijuana stocks (ACB stock, TLRY stock, and CGC stock) are strong opportunities in the near term, as Bank of America points out, there’s even better upside if you take a long-term view of the market.

In my opinion, there are few industries that are as rich in opportunity as marijuana.

Analyst Take

It’s no exaggeration to say that the immediate future of marijuana stocks is directly tied to U.S. politics. With the entire industry eagerly awaiting some form of federal action on pot laws in the U.S., there’s a lot of pent-up excitement.

And that, dear reader, is a great opportunity for early investors.

While marijuana slowly but surely battles its way to legitimacy, state by state and bill by bill, there’s bound to be a breaking of the dam, so to speak, when we’ll see some major reform that elevates marijuana stock prices across the board.

Institutional investors, while cautious, are not blind to this fact. They’re likely going to increasingly provide more coverage of pot stocks and even invest in a few, should they be decriminalized.

But the real gains are to be made in the period between now and full U.S. marijuana legalization. That makes this a potentially fantastic time to invest. Better yet, with the American political system as unpredictable as it has been in the past few years, we might see marijuana legalization (and a pot stock value explosion) sooner than we think.