Canadian Marijuana Stocks Have a Path Toward Major Gains, But There’s a Catch

This One Factor Could Decide the Long-Term Fate of Canadian Pot Stocks

You may have noticed that I’ve recently been on the U.S. marijuana stock bandwagon.

And for good reason. Some of my favorite U.S. pot stocks, like Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) and Innovative Industrial Properties Inc (NYSE: IIPR), have shown tremendous growth lately.

Having said that, there’s still hope for Canadian pot stocks to experience huge gains in the near future. In fact, Canadian marijuana stocks may even be able to grow faster than U.S. marijuana stocks, but it all rests on this one question: Will European countries or other international markets legalize pot before the U.S. does?

Why does this matter?

Because, for all the success of U.S. pot stocks, they’re currently restricted in the U.S.

Curaleaf stock and other high-earning U.S. marijuana stocks are doing extremely well, but none of them are listed on major U.S. exchanges.

Why’s that?

They can’t be listed on U.S. stock exchanges until the U.S. federally legalizes marijuana.

Both the New York Stock Exchange (NYSE) and the Nasdaq prohibit companies that sell goods that are banned in the U.S. from being listed on their exchanges. As it stands, marijuana is technically illegal across the country.

Of course, that’s not really enforced; the federal government has allowed states to decide individually if they would like to trade in pot.

That federal prohibition has prevented institutional investors from entering the pot market, marijuana stocks from being listed on major U.S. stock exchanges, and marijuana companies from accessing large pools of capital and storing their money in banks—to name a few challenges.

The federal prohibition hasn’t stopped a winner like Curaleaf Holdings Inc from gaining massive holdings in the U.S. and becoming one of the largest marijuana companies in the world by revenue. But it does restrict it from expanding globally.

Recently, I wrote about Germany’s potential legalization of marijuana. Should that happen, we can expect a rush of investors who are eager to make gains from the millions of potential legal pot consumers in Europe’s largest market.

That would open the door for Canadian marijuana companies to buy into the German market (many already have holdings in the country), allowing them to expand rapidly. That could send Canadian pot stocks soaring.

What’s more, Canadian marijuana companies could do all this with virtually no competition from U.S. marijuana companies.

That creates a situation in which Canadian pot companies can essentially take advantage of the expanded market while U.S. pot companies are stuck waiting for federal legalization in their own country.

To be fair, American marijuana companies have an advantage in that they’re able to expand into each U.S. state that legalizes pot, while Canadian marijuana companies have great difficulty doing so. Canadian marijuana stocks are listed on major U.S. exchanges precisely because the companies don’t sell their products in the U.S.

When many of the major Canadian pot stocks wanted to be listed on the Nasdaq or NYSE, the companies had to divest from their U.S. assets in order to satisfy the rules of the exchanges.

That leaves marijuana stock investors in a tricky situation, wherein Canadian marijuana companies are looking for international markets to open up while American marijuana companies benefit from individual U.S. states legalizing pot.

And while there are still several major U.S. states that haven’t legalized marijuana, they wouldn’t be able to compete with the combined opportunities of the entire EU and other international markets.

Which isn’t to say that European countries or other international markets will legalize marijuana anytime soon. In fact, it’s up in the air as to which countries will legalize pot next. Having said that, Germany looks closer than it ever has been, and if it does make a move in this direction, investors in Canadian marijuana stocks will likely score big.

CGC Stock & ACB Stock

The two pot companies I’m keeping an eye on in the lead-up to the potential German marijuana legalization are Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (NASDAQ:ACB).

Both marijuana companies already have holdings in Germany, giving them a leg up on the competition when it comes to expanding into that market.

Chart courtesy of StockCharts.com

While both Canopy Growth stock and Aurora Cannabis stock have performed relatively weakly lately, they’ve also both experienced massive gains as COVID-19 no longer appears to be the world-ending threat it presented itself as at the start of the pandemic.

As it stands, both CGC stock and ACB stock are undervalued, in my opinion (or at least they’re trading at reasonable prices and could see spikes even without Germany legalizing marijuana).

But if Canopy Growth Corp or Aurora Cannabis Inc are able to parlay their current German foundations into a piece of the pie when legalization comes to that country, they could experience huge boons to their share prices.

In my mind, both Canopy Growth stock and Aurora Cannabis stock have a great opportunity to make some serious share-price gains if Germany legalizes pot.

The best way to capitalize on this potential opportunity is to watch the news from Germany and see how Canopy Growth Corp and Aurora Cannabis Inc respond.

An aggressive foray into the German market could pay off big-time.

Analyst Take

While I firmly believe that the future of the marijuana industry lies in the U.S., that doesn’t mean Canadian pot stocks are dead.

Quite the opposite.

Canadian pot companies are perfectly poised to take advantage of marijuana legalization internationally as the U.S. maintains its federal marijuana prohibition.

That gives Canadian marijuana companies time to establish roots around the globe while U.S. marijuana companies have to remain confined to their own country.

If played right, this advantage could be massive for holders of Canadian marijuana stocks.