My several months long research on the cannabis industry has been inconclusive - yielding some longer term pluses and some shorter term minuses. My greatest concern, however, was the price of pot stocks. Valuations, until a few months ago, were simply too high (both in the U.S. and, particularly, in Canada).
The short term road ahead for profitable growth in the cannabis business and use in health, medical and recreational applications are likely to be winding and not a straight path. The painful smackdown of this space over the last few months is testimony to those concerns.
The near term holds multiple challenges, but the intermediate and longer term are potentially promising, and I am currently considering buying a package of U.S.-based cannabis stocks as a long term investment. (Of course I will keep you up on my investing in this space).
Frankly, I have been waiting for cannabis stocks to correct - which they have, with a vengeance, dropping by nearly 50% since the April 2019 highs.
For now, let's say I am upgrading the space to "slightly positive." Cannabis stocks have been heavily debated - surrounded by zealots on both sides of the argument and in which, again, valuations have receded dramatically (in some measure because of the vaping controversy, an oversupply of weed for recreational use, credibility at CannTrust (CTST) , individual company liquidity issues and concerns regarding the timing of FDA approvals and cannabis efficacy).
Late yesterday the cannabis industry scored a big victory as the House of Representatives passed (in a bipartisan vote - 321 to 103 with nearly all the Democrats and 91 Republicans favoring the Bill) the Secure and Fair Enforcement Banking Act of 2019 which allows banks to process the business of cannabis shops and related companies in 11 states and tribe-legal jurisdictions that have legalized the recreational use of marijuana.
At the very least this will lend stability to this speculative and unstable (over the last three months) sector. At the best this will provide the beginning of an important upturn for cannabis stocks.
This is the first cannabis reform bill that has ever been passed in that chamber - now it goes to the Senate where a version of the Bill is still in committee and its acceptance is still unclear. (Republican and Chairman of the Senate Banking Committee, Mike Crapo, has said he will mark the bill up by year end. Then Senator Mitch McConnell has to decide whether to take the legislation to a vote).
If passed it will lend stability and security to the cannabis industry by ending the reliance of cash as commercial banks will be allowed to serve, without criminal risks, as intermediaries in pot purchases.
Months ago I made a good trade (buying and selling) in a speculative Canopy Growth (CGC) but I prematurely repurchased it several months ago.
I recognized that CGC was highly valued but I thought the imprimatur of and investment by Constellation Brands (STZ) was an offset.
That was a mistake.
That said, I have been steadily buying CGC (which I consider to be a hybrid U.S./Canadian company) over the last week as posted in my Diary. Besides the passage of the House Bill, possibly successful company sleeping trials and the installation of a new CEO provide potential upside catalysts.
The cannabis space continues to be speculative but, given the price declines, I am considering establishing a long investment stake in a package of cannabis stocks (with emphasis on U.S.-based companies).
Seen almost as consumer packaged goods companies, the opportunities for U.S. cannabis stocks in ingredient applications such as beverages, cosmetics, pet supplements and, ultimately, cannabis medicine, are immense.
Some potential cannabis investment ideas that have retreated in price and have become attractive include Cresco Labs (CRLBF) , Curaleaf Holdings (CURLF) , Green Thumb Industries (GTBIF) , Harvest Health & Recreation (HRVSF) , and Vireo Health International (VREOF) .
(This commentary originally appeared on Real Money Pro on September 26. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)