What COVID-19 Taught Us About Marijuana Stocks & How to Profit From That Info

Marijuana Stocks Rebound

This year has been an unpredictable one for every company on the market, no matter what industry they operate in. COVID-19 has created perhaps the most unpredictable economy since the Great Depression.

Marijuana stocks, due to their volatile nature as part of an emergent industry, became more destabilized than most, with many collapsing during the worst of the economic downturn.

Still, two marijuana stocks in particular, Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA) and Innovative Industrial Properties Inc (NYSE:IIPR), have not only bounced back, but have registered serious gains in 2020.

What does that tell us about pot stocks moving forward?

The answer to that question: not all marijuana stocks are created equal. While we all know this intrinsically, investors have not necessarily been making trades with this axiom in mind.

That lack of discretion when it comes to pot stocks has resulted in many speculative buys of marijuana penny stocks—stocks that were, before the crash, among the most volatile ones on the market.

Now, however, we have proof positive that there is, in fact, a substantive difference between the fly-by-night get-rich-quick marijuana penny stocks you’ve never heard of, and the ones that have real staying power.

One thing we’ve learned is that CURLF stock and IIPR stock are two of the most reliable and strongest marijuana stocks around right now.

Chart courtesy of StockCharts.com

Look at the above chart and you’ll notice something right off the bat: only two of those five pot stocks are in the black. The rest have had a much tougher time year-to-date.

Those two marijuana stocks showing gains in 2020 are Curaleaf stock and Innovative Industrial Properties stock. In fact, both companies have netted investors 40% gains in 2020, while many others have seen significant losses.

So what gives? Why did some pot stocks thrive while others fell?

There are two main factors that helped push CURLF stock and IIPR stock up while so many other stocks trended downward. They both have positive financials and they both operate in the most lucrative marijuana market on Earth: the United States.

Both stocks have had very strong showings in recent months and years, even with the marijuana market being especially volatile due to the massive spikes of hype that surrounded Canadian marijuana legalization. When that hype arrived, investors were like piranhas at a blood bank, swarming to the pot industry and inflating share prices.

That, of course, led to a correction that I rightfully predicted.

But I also predicted that, after the initial correction due to the luster wearing off of Canadian marijuana legalization, we’d see momentum once again behind marijuana stocks. The reason being that, while investors may have to wait longer than they first anticipated to see the real potential of the pot market unfurl, that day is still coming.

I ended up being wrong, but to be fair, that’s because we hit a Black Swan event: COVID-19.

No one could have predicted a global economic shutdown of this magnitude. As such, it has changed a whole lot regarding the marijuana market, particularly the outlook for U.S. marijuana legalization.

With all that in mind, in these trying times, the companies with actual substance—something a little more tangible than dreams and promises on offer—are going to thrive while the pretenders won’t. And that’s what happened with Curaleaf stock and Innovative Industrial Properties stock.

Remember that Curaleaf Holdings Inc hopes to be the first marijuana company to reach a billion dollars in revenue. While that may be skewed somewhat now by the coronavirus, ultimately that’s a worthy and admirable goal. And it’s one that is very attainable for this company for one simple reason: the U.S. marijuana market.

Still considered the Holy Grail of the pot industry, federal U.S. marijuana legalization is something that every marijuana investor is hungrily awaiting.

While 2020 started off very promising, with a slew of presidential candidates that were floating pro-marijuana policies—a first in modern American political history—that all was quickly flushed away by the dual setbacks of COVID-19 and Joe Biden scoring the Democratic Party presidential nomination.

COVID-19 is bad for federal U.S. marijuana legalization because, well, no one wants to talk about marijuana legalization right now. When you have thousands upon thousands of people dying due to the coronavirus, with millions more at risk, it would stand to reason that reefer takes a back seat on the political stage.

But what’s worse, in a field crowded with relatively pro-marijuana politicians (heck, compared to our last presidential choices, this year’s crop of hopefuls looked like Cheech and Chong groupies), the only Democratic Party presidential candidate who didn’t have a pro-pot agenda, Biden, won out.

Whatever your political leanings, that’s bad news for weed stocks. There’s simply no other way to spin it.

Now, I’m holding out hope that Biden may come around to pressure from constituents (mainly on the progressive left) who have made U.S. marijuana legalization a pillar initiative.

According to one report, there were “huge battles” going on between the left and the establishment Democrats over U.S. marijuana legalization. (Source: “The Left Gets Rolled on Legalizing Pot — and Legal Protections for Cops,” Politico, July 8, 2020.)

I mean, this should be a pretty easy calculus for a politician: marijuana legalization is overwhelming popular. People want it. In a democracy, I’ve heard it said, politicians are typically supposed to support the majority. But I digress, Biden is who the Democrats are stuck with.

As for the Republicans, President Donald Trump doesn’t have strong leanings on pot one way or the other, and he probably won’t pay much attention to the topic.

Trump’s Attorney General Bill Barr, however, was recently at the center of a whistleblower scandal after it came out that Barr used his office to target marijuana companies as part of his personal distaste for the drug. (Source: “Barr’s Personal Animus Towards Marijuana Prompted Cannabis Industry Probes, DOJ Whistleblower Says,” Forbes, June 24, 2020.)

Despite all the political machinations basically spinning in place when it comes to marijuana legalization, it’s still in a better position than it has ever been. COVID-19 has likely delayed the arrival of federal legalization, but that hardly means the movement is dead.

And, of course, when U.S. marijuana legalization does land, we can anticipate huge gains for pot stocks.

And that brings us back to why CURLF stock is so enticing: Curaleaf Holdings Inc is the world’s largest marijuana company, operating in 23 states and growing. (Source: “Curaleaf Completes the Acquisition of Grassroots Creating the World’s Largest Cannabis Company,” Cision, July 23, 2020.)

This is the U.S. marijuana stock.

And, as you’d expect, investors are excited about the future of U.S. pot stocks and have therefore backed Curaleaf stock, despite the economic downturn.

Between Curaleaf Holdings Inc’s huge promise of revenue and its ability to deliver with its U.S. market foothold, it makes sense that CURLF stock has been more able than most to weather the catastrophe that is COVID-19.

Innovative Industrial Properties Inc has a very similar story: it has great financials and it operates in the United States.

What makes IIPR stock so exciting is that Innovative Industrial Properties is a marijuana real estate investment trust (REIT). Essentially, the company rents out land to pot producers, making it the shovel-and-pick salesman in a gold rush.

As such, Innovative Industrial Properties stock has been on our radar for a long time, and we’ve seen it net huge gains for investors.

What’s more, Innovative Industrial Properties Inc has been growing across the U.S. at a steady clip while delivering a quarterly dividend to investors (REITs have to distribute 90% of profits back to investors in this way).

It’s a nice little bonus from a company that already has a lot going for it.

So the two major takeaways here are: 1) U.S. marijuana stocks continue to carry the most excitement moving forward (while many Canadian pot stocks are beginning to be viewed as bloated and overvalued), and 2) pot stocks with strong financials to show investors have been more resistant to market volatility.

It’s not rocket science, but you might be shocked how many investors forget to look at these kinds of very simple, very predictive factors.

Analyst Take

The fact of the matter is that marijuana stocks are going to rebound. There’s simply too much untapped potential in the market for them to not see significant gains in the coming years.

But those gains will not be distributed evenly. Companies that demonstrate reliability via strong financials, and those that develop a market hold in the U.S., are going to be the big winners in the coming years.

IIPR stock and CURLF stock, then, both have what investors should be looking for in a top pot stock.