Marijuana stocks started the year on a high but have lately faced ups and downs. However, the euphoria hasn’t died out and even without federal legalization, pot stocks are doing well. Domestic pot stocks had particularly performed well in the first half of this year. However…
Canadian companies that showed promise earlier on in 2021 are facing some roadblocks. Canadian pot producers are now betting on the U.S. market but making inroads would be a challenge as marijuana isn’t fully legalized in the country. Thus, domestic players like Tilray, Inc. TLRY, Sundial Growers SNDL, Block Inc. SQ and Innovative Industrial Properties, Inc. IIPR are likely to dominate the space in the coming days.
Wait for Legalization
The pandemic saw cannabis stocks flourishing, with the sector hitting a record $17.5 billion in sales last year. The positive trend continued and investors expected the sector to benefit after the 2020 Presidential election and eventual Democratic victories in Congress. This saw marijuana stocks peaking in February.
However, the pace of federal legalization has somewhat slowed down. Marijuana investors had hoped that Biden would keep his campaign promise and his administration would push for marijuana legalization through Congress in 2021. That hasn’t happened and legalization can now become reality only in 2022.
Efforts to Legalize Marijuana Continue
A little patience can prove beneficial for those who are hopeful about the sector’s future. Earlier this year, the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) and the Medical Marijuana Act was passed by the Democrat-led House, hinting at legalization of marijuana in the coming days.
The two acts have paved the way for banks and other financial institutions to provide services to marijuana companies in legalized states without penalty. Now the wait is for the decriminalization of marijuana at the federal level, while state level legalization continues to ramp up. States like Ohio have been pushing for legalizing marijuana and although slow, the process is on.
While a few Democrats are strongly pushing for federal-level legalization in the near term, President Biden needs to take a call. According to a report in Marijuana.Moments.net, Rep. Alexandra Ocasio-Cortez has urged Biden to bypass Congressional inaction and decriminalize marijuana by a de facto law through his executive orders.
“Biden needs to lean on his executive authority now. He has been delaying and underutilizing it so far. There is an enormous amount he can do on climate, student debt, immigration, cannabis, health care, and more,” Ocasi-Cortez tweeted on Dec 21.
At present, with prohibition on, it means higher taxes, higher cost of capital alongside compliance costs. Legalization of marijuana would boost free flow of cash, leading to a higher valuation.
The hope of marijuana getting legalized has also seen top companies buying other entities. Legalization at the federal level is only likely to supercharge growth for the sector in 2022. Also, longer regulatory timelines will allow marijuana stocks with strong fundamentals to cement their position in the industry.
In fact, there are multiple catalysts in place that are likely to help marijuana stocks in 2022. According to BDSA, cannabis sales in the United States is projected to surpass $24 billion in 2021. This reflects 38% year-over-year growth. Moreover, it expects U.S. sales to reach $47.6 billion in 2026 at a CAGR of 14%.
Experts believe that the marijuana industry is likely to experience a domino effect soon with more states legalizing it. The states that have now made marijuana legal will create pressure on their neighbouring states to follow suit so that they can curb tax revenues. As more states legalize marijuana, the government will be under pressure to decriminalize pot at the federal level.
4 Stocks to Watch in 2022
Tilray, Inc. is a pharmaceutical company. TLRY develops cannabis-based medicines, drugs, drops and oil products. Tilray provides medical and adult-use cannabis products; pharmaceutical and wellness products; beverage alcohol products; and hemp-based food and other wellness products.
Currently, Tilray has a Zacks Rank #3 (Hold). TLRY’s expected earnings growth rate is 41.3% for the current year and 44.4% for next year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sundial Growers operates as a pharmaceutical company. SNDL produces and grows cannabis strains. Sundial produces and distributes inhalable products, such as flower, pre-rolls, and vapes. The company offers its products under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brands.
Currently, SNDL has a Zacks Rank #3. SNDL’s expected earnings growth rate is 69.3% for the current year and more than 100% for next year.
Block Inc. provides payment and point-of-sale solutions in the United States and internationally. But Block introduced…
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