How high can the cannabis stocks go?

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Lets talk cannabis stocks. In the last couple trading days we saw cannabis stocks pop off and by a lot! A good chunk of these stocks have unfortunately seen a massive decline in the last five to ten years. The obvious reason surrounding this is the legality of smoking, growing, and selling cannabis. Where does it all start?

First we need to look at the law. At the federal level, Marijuana was classified as a schedule 1 drug back in the 70s by President Nixon and his “War on drugs”. Today, it remains a schedule 1 drug federally but around 40 states now have changed their laws to make it less of an offense to smoke, sell, carry, or grow cannabis. It all depends on your state. A schedule 1 drug means that the drug has no medical benefit at all. This has obviously been proven wrong over the years and has been approved by the FDA to be used in the medical field for a handful of reasons.

What does this have to do with stocks? Well depending on the state you’re in, you may see shops advertising cannabis. But what you may not know is how much they are financially suffering for it. Companies who sell cannabis can not claim business expenses for it. Meaning, tax right offs, paying employees, or anything that a normal business can get money back for on their taxes, these guys can’t. This hinders the companies drastically.

Now imagine you’re a publicly traded company and your expenses are outweighing your revenue. Doesn’t look to good does it. Now enter Donald Trump. It’s obvious by now whether you like him or not, we all can agree that he is trying to do a million things at once. Well last week one of those things was mentioning the reclassification of cannabis. This sent the cannabis stocks soaring for a short time. Lets take a look at some of the stocks.

First one above is Tilray. TLRY saw an 85% boost on the news.

This next one is Aurora Cannabis. ACB saw a 21% growth.

Finally we see SNDL who had a 27% increase.

There is an important thing to remember here. There is no proof that President Trump is really going to do this. These gains are more than likely going to get wiped away. In the past few days President Trump took over the Washington D.C Police department in an unprecedented move to “clean up the city”. It probably won’t look good if he reclassifies a schedule 1 drug right after doing this.

Also know this. If he does make a move to do this. Only congress can actually reclassify a drug federally. Luckily for President Trump republicans have the majority in congress so he could probably get them to pass it if he wants them to. Finally, if all this passes, it could actually take years for all of this to be finalized to actually start making an impact on companies selling cannabis.

A Final Note

A lot of these cannabis stocks are already sub $3. I would recommend being very careful getting into any of these without doing your research. There is a difference between getting in early and getting in WAY TO EARLY. If you truly feel the need to own something, maybe an ETF might be the safest way to go. Just be very careful around these. Big money to be made, but big money to be lost too.