Canadian Marijuana Stocks Come Roaring Back to Life

Canadian Pot Stocks Surge: Can the Gains Be Sustained?

The marijuana market is having a great start to 2021. While we’d all like to see COVID-19 gone this year, pot stock bulls can at least celebrate the amazing run we’ve seen from marijuana stocks, particularly Canadian marijuana stocks. But can that run be sustained?

Short answer: absolutely. More complicated answer: there’s going to be volatility.

After all, we’ve seen these kinds of massive, sudden surges by pot stocks before. It almost always means huge gains for investors who get in early, and huge disappointments for investors who buy at the top of spike.

Having said that, even investors who’ve gotten in late on mini boom-bust cycles have been able to make large gains—if they didn’t mind having to suffer short-term losses and hold out for the long-term promise of the marijuana market.

Chart courtesy of StockCharts.com

Looking at the chart above, it’s hard not to salivate over pot stocks, especially Canadian pot stocks.

While U.S. marijuana stocks are still where the long-term market is headed, Canadian marijuana stocks are in an extremely advantageous position to eke out massive gains—something I’ve been adamant about for a few weeks now.

And how I love it when the market proves me right.

Which isn’t to say that the larger marijuana market isn’t also well suited for gains (as I said, U.S. pot stocks are the future). At the moment, however, the larger opportunity for massive gains lies in Canadian pot stocks.

Why? It’s simple: Canadian pot stocks were being grossly undervalued.

Case in point: Aphria Inc (NYSE:APHA). Take a look at Aphria stock’s performance over the past year and a half:

Chart courtesy of StockCharts.com

Yes, the pandemic did its damage to APHA stock in March 2020, but as you can see, things were already on the way down before that. That’s because, despite all the hype surrounding Canadian marijuana legalization, the reality wasn’t all rainbows and celebration blunts.

Instead, Canada faced a stubbornly resistant black market, expensive legal marijuana, too few brick-and-mortar stores, and spotty distribution.

But, as I’ve written month after month, these were growing pains; it was inevitable that they would be sorted out eventually.

That didn’t stop the market from panicking and causing many Canadian marijuana stocks to sink. But panic selling doesn’t change the reality of the situation. And the reality is that the Canadian marijuana market is continuing to mature, with a proliferation of brick-and-mortar storefronts alongside increasingly affordable weed and a (slowly but surely) dying black market.

And the real kicker: the dominance of the Democratic Party at the federal level. The Democrats, love or hate their politics, are certainly the party of marijuana legalization at this point. While U.S. pot legalization is growing in popularity and becoming more of a bipartisan issue, the fact remains that only one party counts U.S. pot legalization among its top policy goals.

While that goal isn’t shared by everyone in the party (and most regrettably, is opposed by newly elected President Joe Biden), the Democrats are now in control of Congress and the White House, which means that federal marijuana legalization in the U.S. is closer than it has ever been to becoming a reality.

Biden may not love marijuana, but it’s highly unlikely he’ll veto a bill that would legalize the drug, should such a bill make it through Congress.

And even with control of both the House and the Senate, there’s no guarantee that marijuana legalization will pass. After all, the Democrats only maintain a razor-thin majority in the Senate, and it’s not much wider in the House.

What’s more, while many Republicans support marijuana legalization, bipartisan cooperation seems unlikely, at least in the near term. We can expect to see a lot of political squabbling over other provisions that U.S. weed legalization entails, like what to do about the thousands of people incarcerated for marijuana offences.

In any case, the momentum gained in the U.S., mixed with Canadian pot stocks being undervalued (not to mention the effects of the COVID-19 pandemic), is a perfect storm for a wild rally.

And that’s without even touching upon Aphria Inc’s merger with Tilray Inc (NASDAQ:TLRY). The two major Canadian pot companies are set to combine into the largest legal pot company in the world, based on sales. (Source: “Canadian Pot Producers Aphria, Tilray Unveil Merger Plan to Create Global Leader,” CBC, December 16, 2020.)

The two companies’ combined revenue was CA$874.0 million in 2020. Together, they account for about 17% of the Canadian marijuana market. What’s more, they expect to save $100.0 million following the merger.

Furthermore, the merged company has eyes on the U.S. market after Aphria Inc purchased SweetWater Brewing Company, Inc., an Atlanta-based craft brewer with distribution in 27 states, for $300.0 million. (Source: Ibid.)

Marijuana-infused beverages remain a hot new product, and the two companies are combining at just the right time (when they were both undervalued). This makes the new TLRY stock (what the company will trade under following the merger) all the more exciting.

Chart courtesy of StockCharts.com

The upcoming merger has already caused APHA stock and TLRY stock to each soar roughly 150% since November. With the current market conditions, there’s a good chance the rally won’t slow down anytime soon.

Analyst Take

It’s hard to not be giddy about the marijuana market right now.

After all, there was a long period when things were rather dour. But it appears that those days are gone. For pot bulls like myself, who’ve been preaching buy-and-hold strategies for these companies, it’s good to see pot stocks once again reward investors.

The good news is that the gains are just getting started. Between the excellent market conditions in Canada making a potential industry-wide breakout a strong possibility—alongside the growing momentum in the U.S.—we have the most exciting year for the marijuana market since 2015.