If you work in the cannabis industry, Joe Biden’s latest move is a possible godsend for a segment of the economy that’s struggled to gain traction.
On Oct. 6, President Biden granted pardons to approximately 6,500 people who have been charged by the federal government for possession of marijuana.
“As I often said during my campaign for President, no one should be in jail just for using or possessing marijuana. Sending people to prison for possessing marijuana has upended too many lives and incarcerated people for conduct that many states no longer prohibit,” Biden stated in the press release from the White House.
“Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities.”
It’s also the first bright spot in a year for investors in pot stocks, where shares in cannabis companies - from retail to real estate plays - have fallen farther and faster than any other.
While anyone connected to the cannabis industry is likely happy that these people are getting their lives back, the more important statement was the president’s request to the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to remove cannabis from Schedule I of the Controlled Substances Act.
This could accelerate the federal government’s timetable for legalizing cannabis, which would create a “gold rush” of opportunities for many currently locked out of the U.S. cannabis industry.
The most obvious candidates to benefit from the federal government are Canadian cannabis producers precluded from doing business in the U.S. and U.S. multi-state operators who would consolidate their manufacturing operations while being able to sell in all 50 states, significantly improving their margins and operational efficiencies.
Who are the three pot stocks to buy after Biden’s pardons? My choices aren’t nearly as obvious as you might think.
Constellation Brands (STZ) shares have been hammered because of its multi-billion-dollar investment in Canopy Growth (CGC). The plan way back in 2017, was to use the Canadian cannabis company as its fourth platform of growth: beer, wine, and spirits being its other revenue streams.
However, for Canopy to pay off as an investment, Constellation needs the federal government to legalize cannabis in all 50 states. That’s because it has two acquisitions that hinge on this little fly-in-the-ointment.
In 2019, it agreed to buy 100% of U,S.-based Acreage Holdings (ACRHF) on the condition of federal legalization. In Oct. 2021, it made a similar deal with Colorado-based edibles leader Wana Brands.
Acreage Holdings’ stock jumped more than 62% on Biden’s news. Constellation is down nearly 4% on Q3 2022 results that included a $1.1 billion non-cash impairment charge on its Canopy investment. Constellation’s CEO, Bill Newlands, is still optimistic that its bet will pay off. STZ is the safer long-term play.
ETFMG Alternative Harvest ETF
I felt something newer might be the way to go. As a result, I picked the Global X Cannabis ETF (POTX) because of its Canadian content. However, if you’re looking to bet on the Canadian cannabis companies winning big under Biden’s change of heart, MJ is probably the better way to go because of its size.
That said, POTX is a good ETF with Mirae, a large asset management company, behind it. Plus its expense ratio is 25 basis points cheaper than MJ.
Curaleaf Holdings (CURLF) gained 33% on the Oct. 6 news. It made the list of 10 stocks.
The Massachusetts-based multi-state operator (MSO) is listed on the Canadian Securities Exchange (CSE). Federal legalization would ensure that it could list its shares on a U.S. stock exchange. For now, unless you’ve got access to the CSE, you’ll have to buy its shares over the counter.
Curaleaf is one of the country’s largest MSOs with vertically-integrated operations in 21 states including Massachusetts, New York, and Florida.
It’s got big revenues and they’ll only get bigger with federal legalization.
Plus, it’s got an inroad into the German market with a 55% ownership stake in Four 20 Pharma GmbH, one of the country’s leading medical marijuana producers. Germany’s expected to legalize adult-use marijuana by early 2024.
Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.
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