Marijuana Stocks Look to Rebound
The stock market is in shambles right now. On March 9, the S&P 500 triggered its circuit breaker, a mechanism that prevents trading for 15 minutes if certain thresholds are breached. That was after the index dropped seven points to start the day.
But there is a silver lining: marijuana stocks could be on the upswing.
To understand why pot stocks are especially well positioned after we hit the current market snag, we need a bit of a history lesson.
During the recession of 2008, alcohol did not see a dip in sales. In fact, alcohol sales climbed despite the rapid drop in both stock market value and personal wealth in the United States. (Source: “Alcohol sales thrive in hard times,” CNN Money, June 9, 2011.)
“I wouldn’t say it’s recession proof,” said Esther Kwon, an alcohol industry analyst at Standard & Poor’s Financial Services LLC, in 2011. “People will buy less and they will move to different venues, meaning moving to home instead of a bar. But people will continue to drink, regardless.”
Alcoholic beverage sales jumped by 10% over the 12-month period ended May 31, 2011, despite unemployment rising. That growth was pretty consistent: in 2010 (a year when unemployment also rose), alcohol sales grew by nine percent compared to the previous year.
“These numbers grew almost in spite of the recession,” said Sageworks analyst Sam Zippin, pointing out that healthcare was the only other industry to maintain growth through the Great Recession. “Other than going to the doctor, [alcohol] is another need to have.” (Source: Ibid.)
So what does this tell us about our current market downturn? A few things.
One, vice goods like alcohol and marijuana are, to a degree, recession-proof. Why? Because when people are distraught, they turn toward relatively cheap distractions to get away from the grim reality.
Another is that sales of these goods are not going to fall with the stock market, and will, in fact, keep growing even as the market recovers, making them solid long-term picks during a time of market panic.
What’s more, marijuana stocks have another great tool at their disposal: their company’s products are enjoyed at home.
While alcohol can be legally consumed at home, in restaurants, in bars, and at certain other public places, marijuana is right now almost exclusively enjoyed at home. That means pot consumers don’t have to go out to congregate with large numbers of people and potentially contract the coronavirus.
The fact that marijuana can be enjoyed at home without too much human interaction is a huge boon to pot stocks.
Even better, marijuana stocks are set to rebound anyways. They were on a downturn prior to the recent market crash and are now poised to see huge gains in the coming months and years.
I’ve been championing the long-term outlook of pot stocks for years now. Correction or no correction, upswing or downswing, these stocks are poised to see massive gains as legalization spreads around the world and the black market is diminished.
With the coronavirus scare giving marijuana stocks a much-needed boost on top of the aforementioned momentum and on top of the U.S. presidential election potentially heralding federal legalization in the U.S., we have what could be one of the most favorable markets for pot stocks.
Consider that Canopy Growth Corp (NYSE:CGC) grew by seven percent on March 10. On the same day, Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA) also gained about five percent.
Both stocks have seen tough times in 2020, no doubt, but they are both poised for big comebacks in the near future for all the reasons mentioned above.
Add that to the coronavirus bump that they could receive, and CGC stock and CURLF stock could be big winners as the year progresses.
These two stocks will probably see gains in fits and starts, which for the concerned investor is a good thing.
Rather than having one large explosion of gains, I anticipate that Canopy Growth stock and Curaleaf stock will go through several stages of growth as their quarterly reports are released, showing that the companies’ sales are up.
Add that to the fact that many investors will, after having panic-sold their holdings during the coronavirus dip, be looking to put their money somewhere safe.
While the legal marijuana industry hasn’t exactly been safe since its inception, the sector’s volatility may end up seeming downright pedestrian if the overall stock market tanks following the coronavirus spread.
In that case, marijuana stocks may seem to be the most solid option. These types of industries typically fare well during market downturns. As mentioned, there is a great combination of factors that could produce huge gains for pot stocks.
Now you may be saying that the current stock market drop is far different than the 2008 recession, in that there isn’t the massive loss of jobs and personal wealth like there was during the housing market collapse of 2008.
But here’s the thing: we are set to potentially see thousands of layoffs in industries such as airlines, cruises, and hotels.
And we haven’t even touched on the massive layoffs that could stem from the oil price collapse. A good chunk of the shale industry in the U.S. is at risk due to crude oil prices dropping so dramatically.
All this could combine to leave thousands of people without jobs—much like during the Great Recession—which in turn could lead to increased marijuana and alcohol consumption if history proves correct.
The current market conditions are making the case for a very powerful comeback by marijuana stocks in the near future.
With that in mind, we can expect to see revenue grow both organically and from the current economic climate, making pot stocks once again some of the more exciting opportunities available on the market.
Therefore, investors seeking a long-term winner could do worse than marijuana stocks. Cannabis companies may not just be recession-proof; they could actually stand to benefit from an overall dip in the market.
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