Cannabis Stocks Get Increased Attention As More States Legalize Weed — Do Industry Leaders Like Aurora, Cresco, Evolv And Others Deserve A Place In Your Portfolio?

Key takeaways

  • Marijuana is a booming industry with lots of potential for growth. It is now legal in some way, shape or form in 47 states (plus Washington, D.C.).
  • The biggest thing holding this industry back is federal law, which still considers weed to be an illegal, Schedule I drug. While the federal government doesn’t often enforce this law, its willingness to do so has changed across presidential administrations.
  • Marijuana stocks have suffered with inflation, proving that they’re different from other ‘sin’ stocks. That said, there are some financially solvent companies to invest in if you’re willing to take on the risk.

There’s been lots of movement in state legislatures regarding marijuana over the past few months. In November, Missouri and Maryland voted to legalize recreational marijuana.

That doesn’t necessarily mean weed is immediately accessible, though. Passing a referendum and implementing a program are two separate things, and sometimes the latter doesn’t get done. For example, Maryland’s program is slated to go live July 1, 2023, but legislators are already warning that the regulations won’t be ready to go by then.

In Missouri, possession became legal on Dec. 8, 2022, but dispensaries aren’t expected to open until February 2023.

But once the wait is over, it’s a pretty exciting time, opening up opportunities for economic growth within a state. That day arrived for New York late last month. New York State initially passed its adult-use marijuana law in March 2021, but its first recreational dispensary opened just a few weeks ago on Dec. 29, 2022.

With all the changing laws, is now the time to get invested in cannabis?

Weed is legal almost everywhere, according to state laws

After the latest additions, marijuana is now legal (according to state law) in 37 states. It’s legal-ish in ten more, but we’ll cover those in a minute.

First, let’s look at the states where marijuana use is legal for either adult use or medical use.

Adult use is essentially the same thing as recreational use, but states do have rules surrounding age limits. In all states where adult use is legal, there is also a medical marijuana program.

States where adult marijuana use is legal

  • Maine
  • Vermont
  • Massachusetts
  • Rhode Island
  • Connecticut
  • New York
  • New Jersey
  • Virginia
  • Michigan
  • Illinois
  • Colorado
  • New Mexico
  • Arizona
  • Nevada
  • California
  • Oregon
  • Washington
  • Montana
  • Alaska
  • Washington, D.C.
  • New Hampshire
  • Pennsylvania
  • Delaware
  • Maryland
  • West Virginia
  • Ohio
  • Florida
  • Alabama
  • Mississippi
  • Louisiana
  • Arkansas
  • Oklahoma
  • Missouri
  • Minnesota
  • North Dakota
  • South Dakota
  • Utah
  • Hawaii

There are an additional 10 states that have CBD or Low THC programs. These rules are usually there for legal defense purposes and don’t totally make marijuana use legal, even according to state law. When they apply, the number of people and situations they protect is limited, depending on the state.

Here are the states where these programs apply:

  • Wyoming
  • Texas
  • Iowa
  • Wisconsin
  • Indiana
  • Kentucky
  • Tennessee
  • North Carolina
  • South Carolina
  • Georgia

The only three states in the nation that have not yet passed any type of marijuana legalization laws are Idaho, Nebraska and Kansas.

Marijuana is still illegal at the federal level, creating banking issues

Technically, marijuana is still classified as a Schedule I substance at the federal level. That means distributing marijuana at all and for any purpose is illegal under federal law, which supersedes state law.

But states have been passing legalization laws since the 1990s, and they started having success in making them stick in the early 2000s. Enforcement of federal law during this time since has gotten squishy.

In October 2009, Barack Obama sent a letter to Federal prosecutors imploring them to not prosecute when marijuana was distributed for medical purposes under state law.

In August 2013, the Department of Justice followed suit, stating that they would not challenge legalization in states that had strong program requirements and frameworks, but they reserved the right to do so in the future if they saw fit.

Under the Trump administration, in January 2018, then Attorney General Sessions instructed prosecutors to go after defendants for marijuana distribution when it best served their needs. Legally, it’s not a huge deviation from the 2013 memo, but the tone changed from hands-off (with the option to change their mind in the future) to hands-on whenever it served the federal government’s case against you.

None of the decisions on whether to prosecute or not change the fact that the entire time, weed has still been illegal at the federal level. This creates a problem for dispensaries and other businesses that aid in dispensing marijuana, because you can’t get a traditional bank account when you’re dealing in Schedule I drugs.

The SAFE Banking Act is a bill that would change that if passed, but it just experienced its third failure to do so. If it were passed, it would help employees and business owners stay safer as they wouldn’t have huge piles of cash they were disallowed from depositing into a traditional bank. It would also make companies less likely to hold their money in crypto, an unstable currency.

Investors may feel more comfortable, too. Cash-based businesses with no access to traditional banking are particularly susceptible to tax fraud and money laundering. These are issues which continue to cause investor hesitation despite the legal marijuana industry booming over the past decade.

Marijuana stocks you can invest in today

Your knee-jerk reaction might be to assume that marijuana is a ‘sin stock,’ falling in a category similar to tobacco and alcohol. Tobacco and alcohol tend to do well in times of recession or economic turmoil, as people aren’t apt to give up their vices in difficult times.

But with marijuana, we’re seeing a different trend in the current environment of high inflation. As inflation has risen, consumers have been cutting back on their trips to the dispensary, especially if the products they’re buying aren’t high THC. This has affected marijuana stocks.

If you’re looking to dip your toe into this new industry that still has a lot of growth potential, here are some popular choices.

Aurora Cannabis (ACB)

Aurora Cannabis is a Canadian-based company that sells its products across the world. While it doesn’t sell flower in the U.S., it has entered the CBD market in America.

Aurora Cannabis reported revenue of $49.3 million for Q1 2023, which ended in September 2022 according to its fiscal calendar.

Cresco Labs (CRLBF)

You can buy flower and all other types of THC and CBD products from Cresco Labs in the U.S. While Cresco does have 54 of its own dispensaries, you can buy the products in dispensaries owned by other companies, too. In 2023, it is expected that Cresco will add 130 dispensaries thanks to a recent merger with Columbia Care.

Cresco reported revenue of $210 million in Q3 2022, which ended in November 2022 per its fiscal calendar. This was a 2% drop year over year.

Tilray (TLRY)

Tilray is another Canadian company that has operations worldwide. You can get marijuana-infused alcohol from Tilray’s brands in the U.S., but it can’t sell flower there until legalization happens.

Tilray reported net revenue of $144.14 in Q2 2023, which ended in November 2022. This was a 7% drop year over year.

What about Evolv?

A few years ago, Canadian company Evolve created an ETF (SEED) centered around cannabis companies. However, after a short time, they reevaluated the fund and decided to drop the project in 2020.

There were some complications in the legalization of marijuana in Canada that made managing the fund in a profitable way tricky, and U.S. reticence to move towards federal legalization also contributed to the decision to discontinue the fund.

There is also a dispensary in Wisconsin called Evolv Cannabis, but it’s not a publicly traded company in which you can invest.

The bottom line

The legal marijuana industry is booming, but it will continue to be hindered until it is actually legal at the federal level in the U.S. Without legislative changes, investors may remain hesitant and big international players like Tilray and Aurora will be unable to fully enter the American market.

If you want to invest in some pioneers who are forging ahead despite the federal risks, you may want to consider investing via a Guilty Pleasures Kit, which does include marijuana investment options.

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