As Economy Gets Ready for Massive Recovery, What Does it Mean for Pot Stocks?

As Economy Grows, Marijuana Stocks Could Benefit

Let’s not split hairs: the future of weed stocks rests on legalization, the most important being federal U.S. pot legalization. Other countries, like Germany, are also considering marijuana legalization with more regularity.

But that doesn’t mean pot stocks are divorced from the broader economy and stock market. To that point, we’re heading into what many analysts believe will be a supercharged U.S. economy—and that’s great news for marijuana stocks.

Let’s get the bad news out of the way first: as I wrote in a recent piece, things aren’t particularly rosy when it comes to U.S. marijuana legalization.

There was massive excitement brewing in the industry as President Joe Biden’s administration took over. While Biden isn’t the most marijuana-friendly politician on the planet (or in his party, or even in his cabinet), there was hope that he would evolve on the issue and may, in the end, become the person who moves federal U.S. pot legalization through.

But as we’ve seen the yawning bipartisan divide in the U.S. on something as highly supported as a COVID-19 relief bill (it didn’t receive a single Republican vote in the House or Senate), that enthusiasm is waning.

Even if some Republicans were to jump on board U.S. marijuana legalization, the bill would almost certainly be filibustered, which would push the vote threshold for it to pass in the Senate to 60. Considering that even one or two Republican votes would be hard-won, there’s virtually no chance of getting 10 Republicans to jump on board.

What’s more, not every Democratic Senator is keen on federal U.S. pot legalization, so there’s very little chance we’ll see movement in Congress until the numbers shift more favorably toward pro-pot politicians (or, ideally, the political parties would actually be able to work together on an issue that enjoys popular support, but that’s looking like a pipe dream at this point).

So until we see Biden change his stance and begin issuing executive orders that support legalization (like removing marijuana’s classification as a Schedule I drug—something that’s very possible—or even issuing a workaround executive order that would create legalization—something that’s highly unlikely), we’re not going to see momentum build behind the marijuana industry, at least not from a political perspective.

But what we are likely to see is a massive, resurgent economy roar to life in the coming weeks and months. And if that comes to pass (which is what many economists are predicting), we could see weed stocks begin to rise at an accelerated pace.

You see, between the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—the $1.9-trillion stimulus bill that Congress recently passed—and the COVID-19 vaccination distribution ramping up, American consumers are projected to come out in droves this summer—after spending a year with little to do and little to spend money on. (Source: “U.S. Economy Ready to Surge With Big Stimulus, Fast Vaccines,” Bloomberg, March 6, 2021.)

That amount of consumer activity could send the economy into overdrive. With a little bit (or rather, a lot) of positivity injected back into the economy, we could see the stock market soar in 2021.

All this will likely culminate in a bullish market for pot stocks.

Much in the same way that emergent industries tend to be the first securities to suffer during a market downturn, the more volatile stocks are likely to be the first ones targeted during a market upswing. That’s because emergent stocks are the ones most likely to rise the fastest.

And that potentially makes marijuana stocks some of the stronger opportunities in 2021.

What’s more, considering that tech stocks have already had their day in the sun (many of them surged, rather than faltered, during the pandemic), investors may not be as keen to put their money in shares that are already considered overvalued. Instead, the smart money would be in shares that have fallen somewhat (like weed stocks), in an attempt to make some major gains during the recovery.

What we have then is a bullish market flush with capital and only a few emergent industries that seem truly primed to grow.

I’ve long been bullish on pot stocks due to the strength of the market as more and more countries pass legalization. In other words, I’ve never been one to try to play the boom-and-bust nature of emergent industries, instead preferring to go long on marijuana stocks, knowing that share prices are bound to rise as the drug is legalized in more jurisdictions.

But right now, there’s an opportunity to see some massive gains as the market recovers.

What’s more, now may be among the best times to invest, as the stimulus and COVID-19 vaccinations serve to juice one of the greatest economic recoveries we may ever see in our lifetimes.

Analyst Take

Weed stocks are in a bit of a slump right now, no doubt. That’s due to the faltering political momentum in the U.S. when it comes to marijuana legalization.

On the flip side, the macroeconomics look good as stimulus money floods into people’s pockets and COVID-19 vaccinations allow them to get back to work and begin making purchases again.

With that amount of positivity driving the market, we can expect to see renewed interest in pot stocks, which in turn means a resurgence is likely on the way. And that makes marijuana stocks once again some of the hotter securities out there.