It can be successfully argued that the next boom in equity trading is likely to be cannabis and related pharmaceutical stocks. Marijuana is only one legislative act away from becoming a major economic force nationwide.
The potential is not lost on investors, who correctly anticipate an incredible advance in share prices and acceptance by the investing public. The industry will achieve financial independence and “a place at the table,” so to speak, following the trail blazed by technology stocks in the 1990s.
With the contradictory legal situation between state governments that have legalized both medical and recreational marijuana, cultivation and use, and the federal government’s continuing criminal sanctions on all the same activities, publicly traded companies are forced to walk a fine line. Engaging in criminal activity as part of a business enterprise can subject both principals and shareholders to all kinds of serious charges at the federal level.
That said, the absence of far-reaching prosecutions at this point is one sign among many that the federal government may be re-thinking its position.
Act of Congress
The pivotal event for cannabis stocks will be the long-expected passage of a law legalizing marijuana at the federal level. This will do three important things.
Open up the market for the products themselves, which will supercharge demand.
Lift the risks associated with transporting marijuana and related products across state lines.
Release funds from institutional investors, especially those in the pharmaceutical industry.
These three effects will push marijuana stock prices higher. This will attract high net-worth individuals, which will produce mainstream press coverage. Media coverage will then attract kitchen table investors. The result will be one of two things:
Much higher share prices and numerous new companies crowding into the market to get their share.
A dot-com style bubble, which will end in a crash that forces the trend-chasers out and forms a floor from which the market can build.
The initial flurry of exuberance must eventually give way to a mature market where marijuana stocks will grow alongside other agricultural, retail, medical device and pharmaceutical shares. Mutual funds will organize themselves around cannabis products, recreational marijuana use and cultivation of medical devices and compounds. New companies will gain access to the commercial paper market, which will help capitalize the industry, and the long-term prospects for a mature market will begin to emerge.
It is instructive to consider that cryptocurrency, technology in general and marijuana stocks all appeal to the same basic investor mindset. It should be interesting to see if entrepreneurs can combine those markets into hybrid products that take advantage of that appeal.
Ultimately, the marijuana market will likely begin to resemble markets for alcohol and tobacco. The stocks will take their place in the “sin portfolios” of some fund managers, and the national market will likely grow and mature at about the same pace.